-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eDHzl14O4rQtxeM3rY+ZOhuCoqPkH7H1Sx+HdMNMmLiGmzQ8DX5LMVhYe/2y+Yz0 VD/J1L0bu2tTow2Y4iLc+Q== 0000950144-94-000812.txt : 19940404 0000950144-94-000812.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950144-94-000812 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940102 FILED AS OF DATE: 19940401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERFACE INC CENTRAL INDEX KEY: 0000715787 STANDARD INDUSTRIAL CLASSIFICATION: 2273 IRS NUMBER: 581451243 STATE OF INCORPORATION: GA FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-12016 FILM NUMBER: 94520115 BUSINESS ADDRESS: STREET 1: ORCHARD HILL RD STREET 2: P O BOX 1503 CITY: LAGRANGE STATE: GA ZIP: 30241 BUSINESS PHONE: 4043196471 FORMER COMPANY: FORMER CONFORMED NAME: INTERFACE FLOORING SYSTEMS INC DATE OF NAME CHANGE: 19870817 10-K 1 INTERFACE FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JANUARY 2, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NO: 0-12016 INTERFACE, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) GEORGIA 58-1451243 - ------------------------------------- ----------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) ORCHARD HILL ROAD (P.O. BOX 1503) LAGRANGE, GEORGIA 30241 - ---------------------------------------- ----------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (706) 882-1891 Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $0.10 PAR VALUE PER SHARE ----------------------------------------------- (Title of Class) 8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2013 ----------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 15, 1994 (assuming conversion of Class B Common Stock into Class A Common Stock): $234,032,910 (15,602,194 shares valued at the last sales price of $15.00). See Item 12. Number of shares outstanding of each of the registrant's classes of Common Stock, as of March 15, 1994: CLASS NUMBER OF SHARES - ---------------------------- ---------------- Class A Common Stock, $0.10 par value per share............................... 14,362,849 Class B Common Stock, $0.10 par value per share............................... 3,106,885 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended January 2, 1994 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the 1994 Annual Meeting of Shareholders are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL Interface, Inc. (the "Company"), through its various operating subsidiaries, manufactures and sells, in domestic and international markets, modular carpet under the Interface(R) and Heuga(R) brands, broadloom carpet under the Bentley(TM) brand, and interior fabrics under the Guilford of Maine(R) and Stevens Linen(TM) brands, for use primarily in offices, health care facilities and other commercial and institutional interiors. The Company also manufactures and markets a number of specialty products and chemicals, including Intersept(R), an antimicrobial chemical agent used in the Company's carpet and fabric products and licensed to others for use in noncompetitive products. The complementary nature of the Company's product lines facilitates cross-marketing of products and positions the Company to expand its significant presence in the worldwide commercial interiors market. The Company's traditional core business has been the development, manufacture, marketing and servicing of modular carpet (carpet tile and six foot roll goods). Modular carpet offers certain inherent advantages over broadloom carpet and other soft surface flooring systems. (See "Carpet -- Products".) The Company's principal modular carpet subsidiaries are Interface Flooring Systems, Inc. ("IFS"), based in the United States, and Interface Europe B.V. (formerly Interface Heuga B.V.), based in the Netherlands. The Company also has modular carpet manufacturing operations in Australia, Canada and the United Kingdom. The Company is the world's largest manufacturer and marketer of modular carpet for commercial, institutional and residential use. Within the last year, the Company has established a significant presence in the broadloom carpet market through acquisitions. In June 1993, the Company acquired Bentley Mills, Inc. ("Bentley Mills"), a leading manufacturer and marketer of high quality, designer-oriented broadloom carpeting used primarily for commercial and institutional applications, with historical annual sales in excess of $100 million. Bentley Mills, based in California, maintains a significant share of this market niche by combining innovative design and short delivery time with a marketing strategy geared toward serving and working closely with interior designers. In March 1994, the Company acquired Prince Street Technologies, Ltd. ("Prince Street"), a Georgia based company engaged in the manufacture and distribution of innovative and technically advanced tufted broadloom carpeting specified by interior designers and architects and sold to flooring contractors for use by end-users in commercial interiors. Guilford of Maine, Inc. ("Guilford"), a subsidiary of the Company, is the leading U.S. manufacturer of interior fabrics for use in open plan office furniture systems. Open plan office furniture systems are typically panel enclosed work stations, customized to particular work environments. The system panels are usually covered in fabric, which enhances the aesthetic and acoustical qualities of the system. Guilford also designs, manufactures and markets fabrics for use as upholstery, window treatments, and wall and ceiling coverings. In February 1993, Guilford acquired the fabric division assets of Stevens Linen Associates, Inc., based in Dudley, Massachusetts. The acquisition significantly expanded Guilford's business in seating and decorative upholstery fabrics, and added flexible and useful manufacturing capacity. Interface Research Corporation ("IRC") and Rockland React-Rite, Inc.("Rockland") are U.S. subsidiaries of the Company engaged in the development, production and marketing of specialty chemicals, including antimicrobial, soil-resistant and stain-inhibiting additives for use in a wide variety of interior finishes. A major focus of the Company over the past several years has been the development of the Envirosense(TM) Consortium, an international organization of companies concerned with addressing workplace environmental issues, particularly poor indoor air quality. A number of the consortium members are manufacturers and marketers of products containing the Company's Intersept antimicrobial. Recent product developments by IRC and Rockland include Protekt2(TM), a proprietary soil and stain retardant treatment for carpet, and Coffee Breaker(R), a cleaning agent that effectively removes stains. 1 3 Pandel, Inc. ("Pandel"), another U.S. subsidiary, manufactures and sells vinyl carpet tile backing, including the CushionBac(TM) system utilized on certain of the Company's carpet products, and specialty mat and foam products. A leading product produced by Pandel is Fatigue Fighter(R), an impact-absorbing modular flooring system designed for use in places where people stand for extended periods. Pandel also makes entrance mats, used to remove dirt and debris from footwear, and static dissipative mats. CARPET Products. The Company's traditional business has centered on the development, manufacture, marketing and servicing of modular carpet (carpet tile and six foot roll goods). The Company is the world's largest manufacturer and marketer of modular carpet for commercial, institutional and residential use. With the acquisitions of Bentley Mills in 1993 and Prince Street in the first quarter of 1994, a significant portion of the Company's carpet sales are now of high quality, designer-oriented broadloom carpet. The Company's free-lay carpet system utilizes carpet tiles cut in precise, dimensionally stable squares to produce a floor covering which combines the appearance and texture of broadloom carpet with the advantages of a modular carpet system. The Company uses a number of conventional and technologically advanced methods of carpet construction to produce carpet tiles in a wide variety of colors, patterns, textures, pile heights and densities designed to meet both the practical and aesthetic needs of a broad group of commercial interiors, particularly offices, health care facilities, airports, educational and other institutions, and retail facilities. The Company produces both fusion-bonded and tufted carpet tile products. (Fusion-bonding is a non-textile process whereby yarn is implanted directly into a thermoplastic base, providing superior density and dimensional stability.) The Company manufactures carpet tile in standard styles and to customer specifications. Approximately 18% of the Company's carpet tile sales in 1993 were pursuant to custom orders. The Company's carpet tile systems and computer aided design and Chromojet(R) printing capabilities permit distinctive styling and patterning that can be used to complement interior designs, to set off areas for particular purposes and to convey graphic information. The growing use of open plan interiors and modern office arrangements utilizing demountable, movable partitions and modular furniture systems has encouraged the use of carpet tile, as compared to conventional broadloom carpet. The Company's patented GlasBac(R) technology employs a unique, fiberglass-reinforced polymeric composite backing that allows the tile to be installed and remain flat on the floor without the need for general application of adhesives or use of fasteners. Carpet tile thus may be easily removed and replaced, permitting rearrangement of office partitions and modular furniture systems without the inconvenience and expense associated with removing, replacing or repairing broadloom carpet. Carpet tile facilitates access to under-floor telephone, electrical and computer wiring by lessening disruption of operations, and also eliminates the cumulative damage and unsightly appearance commonly associated with frequent cutting of conventional carpet as utility connections and disconnections are made. Since a relatively small portion of the carpet installation often receives the bulk of traffic and wear, selective replacement, and the ability to rotate carpet tiles between high traffic and low traffic areas, can significantly increase the average life and cost efficiency of the floor covering. The Company produces and sells carpet tile specially adapted for the health care facility market. The Company's carpet tile possesses characteristics (such as the use of the Intersept antimicrobial, static-controlling nylon yarns, and thermally pigmented, colorfast yarns) making it suitable for use in such facilities in lieu of hard surface flooring. The Company also manufactures and sells fusion-bonded, tufted and needle-punched broadloom floor coverings, including six-foot roll goods under the System Six(R) mark. Principal customers for System Six products are educational and governmental institutions. Bentley Mills' principal products are high-style broadloom carpeting (and carpet tiles) for sale in the commercial and institutional markets. Prince Street's design-sensitive broadloom products center around unique, multi-dimensional textured carpets with a hand-tufted look. Marketing, Sales, Installation and Service. The Company markets its carpet products in North America, the United Kingdom, Continental Europe, Australia and Japan, principally under registered 2 4 trademarks. The Company is aggressively pursuing developing market opportunities in South and Central America, Eastern Europe, China and Southeast Asia. The Company traditionally has focused its marketing strategy on major accounts, seeking to build lasting relationships with national and multinational end-users. The acquisition of Bentley Mills and Prince Street has enhanced the Company's marketing efforts with interior designers and architects. The Company's sales are made through its own sales force as well as through independent dealers. Installation is generally performed by an independent dealer. The Company maintains a Creative Services staff that works directly with clients on upscale projects, helping in determining product selection, customer specifications and unique approaches to design issues. The Company has product and design studios in the United States, England, France, Germany, Spain, Norway, the Netherlands, Australia, Japan and Singapore. The Company's Field Services staff provides on-site customer service for both in-progress and completed installations. The Company emphasizes sales to the office market, both new construction and renovation, as well as to health care facilities, and institutions and public facilities, including libraries, museums, convention and hospitality centers, airports, schools and hotels. In recent years, Interface Europe B.V. has expanded sales for household and residential use. The Company anticipates significant growth opportunities for international sales by Bentley and Prince Street. The Company advertises its carpet products in sales publications and trade journals directed toward major corporate and institutional carpet users and their interior design consultants. Sales representatives also contact such persons directly to encourage specification of the Company's products for pending projects. The Company's sales representatives and design specialists also work with architects, interior designers and end-users in developing desired patterns and colors. Recognizing that many of the Company's customers are moving towards designating a single source supplier for their interior finish needs, the Company has taken significant steps in recent years to bolster its after-installation service capabilities. Interface Service Management, Inc. ("ISM") was formed to provide the Company's U.S. customers with a complete range of flooring maintenance services. (In 1993, the Company acquired the interest of its former joint venture partner in ISM, ISS International Service System, Inc., but continues to utilize ISS contractors to perform various facility maintenance services for customers of ISM.) ISM's objectives are to maximize long-term product appearance, achieve total client satisfaction and facilitate repeat business. A similar but independent initiative was implemented by the Company in Europe, where the Company has licensed selected independent service contractors to provide carpet maintenance services under the mark IMAGE(SM) (Interface Maintenance Advisory Group of Europe). The Company's initial licensing arrangements are in the U.K., and the Company plans to expand the program to Continental Europe in 1994. Manufacturing. The Company manufactures carpet in the United States, the Netherlands, the United Kingdom, Canada and Australia, utilizing both conventional and technologically advanced methods of carpet construction. These multiple locations give the Company sufficient capacity and flexibility to supply its customers with carpet which is produced at the facility offering the most advantageous location for delivery times, exchange rates, tariffs/duties and freight expense. In addition, the use of multiple manufacturing processes enables the Company to manufacture carpet which can be sold over a broad range of prices. Management believes that the Company is the only company with the current ability to offer carpet utilizing any of three different fusion-bonding processes, a tufting process or a needle-punching process. The Company pursues stringent quality control programs. By 1992, the Company's manufacturing operations in the Netherlands and the United Kingdom had received the ISO-9002 certification, awarded by the International Organization for Standardization. The Company has no long-term contracts for any of its principal raw materials, but believes that adequate alternative sources of supply are generally available at comparable prices. 3 5 Competition. The commercial floor covering industry is highly competitive. The Company competes, on a global basis, in the sale of its modular and broadloom carpet with other carpet manufacturers and manufacturers of vinyl and other types of floor covering. There are a large number of such floor covering manufacturers, although the industry has experienced significant consolidation in the recent past. Management believes that the Company is the largest manufacturer of modular carpet in the world, possessing a global market share that is perhaps two or three times that of its nearest competitor. However, a number of domestic and foreign competitors manufacture modular carpet as one segment of their business, and certain of these competitors have financial resources in excess of the Company's. The Company believes the principal competitive factors in its primary markets are broad product lines, quality, appearance, design, product life, marketing strategy, pricing and service. In the office market, modular carpet competes with various floor coverings, of which broadloom carpet is the most common. The appearance, design, longer average life, flexibility (design options, selective rotation or replacement, use in combination with roll goods) and convenience of the Company's modular carpet are its principal competitive advantages, offset in part by its higher initial cost for comparable grades. The Company believes that the recent acquisitions of Bentley Mills and Prince Street have enhanced the Company's competitive position by enabling the Company to offer high-quality, designer-oriented broadloom carpet as an alternative or companion product to its carpet tile. In the health care facility market, the Company's products compete primarily with resilient tile. The Company believes that treatment of its modular carpet with the Intersept antimicrobial chemical agent is a material factor in its ability to compete successfully in the health care market and, increasingly, in other commercial markets. INTERIOR FABRICS Products. Guilford designs, manufactures and markets specialty fabrics for open plan office furniture systems and commercial interiors. Open plan office furniture systems are typically panel-enclosed work stations, customized to particular work environments. The open plan concept offers many advantages over conventional office designs, including more efficient floor space utilization, reduced energy consumption, tax advantages associated with more rapid depreciation than would otherwise be available, and greater flexibility to redesign existing space. Since carpet and fabrics are used in the same types of commercial interiors, Guilford and the Company's carpet subsidiaries are able to coordinate the color, design and marketing of such products. Guilford also incorporates Intersept into certain of its commercial fabrics. Guilford manufactures fabrics made of 100% polyester, as well as wool-polyester blends and numerous other natural and man-made blends, which are either woven or knitted. Guilford products feature a high degree of color consistency, natural dimensional stability and fire retardancy, in addition to their overall aesthetic appeal. Guilford's primary products are fire retardant woven fabrics for panels, which are produced in a wide range of styles, colors and textures. Sales of panel fabrics presently constitute approximately 80% of Guilford's total sales. Guilford also produces woven and knitted seating fabrics, wall covering fabrics that are paper-backed for vertical wall surfaces or acrylic-backed for panel-wall application, ceiling fabrics used to cover tiles or for stretch ceiling construction, and fabrics used for vertical blinds in office interiors. The February 1993 acquisition of the Stevens Linen(TM) lines added decorative, upscale upholstery fabrics and specialty textile products to Guilford's product offerings. All of Guilford's product lines are color and texture coordinated. Enhanced performance is continuously sought through experimentation with different fibers, dyes, chemicals and manufacturing processes. Guilford anticipates that future growth opportunities will arise from the emerging market for refurbishing services, where Guilford's fabrics are used to recover existing panels, and the increased importance being placed on the aesthetic design of the office, with upholstery fabric being the segment of Guilford's non-panel business with the greatest anticipated growth potential. Management also believes that significant growth opportunities exist in international sales, domestic health care markets and in providing textile processing services such as the lamination of fabrics onto substrates for pre-formed panels. 4 6 Marketing and Sales. Guilford's principal customers are original equipment manufacturers (OEM's). Guilford sells to essentially all of the major office furniture manufacturers, with the majority of its sales being made to a small number of companies located in the Grand Rapids, Michigan area (where domestic office furniture manufacturing is concentrated). Guilford also sells to manufacturers and distributors of wallcovering, vertical blinds, acoustical wallboards, ceiling tiles, and residential furniture manufacturers. Guilford's panel fabrics are sold to OEM customers through Guilford's own sales force. Since 1990, when Guilford acquired the company that had been the exclusive U.S. distributor of its open line panel and upholstery products, Guilford has conducted all sales of open line products through its own sales force under the trade name Guilford of Maine Textile Resources. U.S. sales offices are maintained in Saddle Brook, New Jersey and Grand Rapids, Michigan. In 1993, Guilford continued its strategy of expanding its export business and international operations, both to accommodate the demand of principal OEM customers that are expanding their overseas businesses, and to facilitate additional coordinated marketing opportunities with respect to multinational customers of the Company's carpet business. Guilford now has marketing and distribution facilities in Canada and the United Kingdom, and sales offices in Japan and Korea. Guilford works closely with designers, architects and facility planners, who influence the purchasing decisions of buyers in the office interiors industry and also provide Guilford with market and design ideas that are incorporated into its current and future product offerings. Guilford maintains a design studio in Dudley, Massachusetts, which was relocated from New York City at the end of 1993, to accommodate its design team and facilitate coordination between its in-house designers and the design staffs of major customers. Manufacturing. Guilford's manufacturing facilities are located in Maine and Massachusetts. The production of synthetic and wool blended fabrics is relatively intricate and requires many steps. Raw fiber is placed in pressurized vats, and dyes and flame retardants are then forced into the fiber. Particular attention is devoted to the dyeing process which requires a high degree of expertise in order to achieve color consistency. Following dyeing, the fiber is blended and proceeds through numerous steps, including carding, spinning, cone winding, twisting, dressing, weaving and finishing. All raw materials used by Guilford are readily available from a number of sources. Guilford offers textile processing services through its Component Technologies division in Grand Rapids, Michigan. Such services include the lamination of fabrics onto substrates for pre-formed office furniture system panels, facilitating the easy (and more cost effective) assembly of the system components by Guilford's OEM customers. Competition. Guilford competes in its markets on the basis of product design, quality, reliability, price and service. By electing to concentrate on the open plan office furniture systems market (and, more recently, the broader commercial interiors markets), Guilford has been able to specialize its manufacturing capabilities, product offerings and service functions, resulting in a leading market position. Management believes that Guilford is one of the world's largest manufacturers of panel fabric for use in open plan office furniture systems. Guilford has diversified its product offerings for the commercial interiors markets to include a variety of non-panel fabrics, including upholstery, wall coverings, ceiling fabrics and window treatments. The competition in these markets is highly fragmented and includes both large, diversified textile companies, many of which have greater financial resources than Guilford, as well as smaller, non-integrated specialty manufacturers. CHEMICALS Two closely related subsidiaries -- Interface Research Corporation ("IRC") and Rockland React-Rite, Inc. ("Rockland") -- are involved in the research, development, manufacture, marketing and licensing of specialty chemical products. The Company's leading chemical product is its antimicrobial chemical compound, sold under the registered trademark Intersept. More recent product development efforts by IRC have focused on soil-resistant and stain-inhibiting additives, with two products being brought to market. Protekt(2) is a proprietary soil and 5 7 stain retardant treatment that protects the appearance of carpet for its effective service life. A companion product, Coffee Breaker, is a highly effective stain remover for coffee and a number of other tough stains that are frequently encountered in the workplace. Rockland manufactures the chemicals used and sold by the Company. The Company's chemical manufacturing facilities are located in Georgia and Alabama. Rockland produces Intersept both to fulfill the Company's obligations to licensees and to meet the internal requirements of the Company's carpet and interior fabrics operations. Rockland also enjoys a leading U.S. market share in acrylic monomers, which provide much of the special resilient and performance properties of golf balls as well as a host of other industrial products. Rockland also produces a series of accelerators that speed the curing process for rubber used in tires, hoses and other products. Rockland is participating in the development of tires that can continue to be driven without harm in a deflated or "flat" state for extended periods -- which may prove to be marketable in automotive and certain other markets. Another new product developed by Rockland is a super absorbent polymer -- characterized for its water blocking properties useful in a wide variety of applications, including geotextiles (specialty fabrics engineered for underground use). The Company presently markets throughout the world carpet products incorporating Intersept. IRC has granted licenses to other companies for the use of Intersept in products that are noncompetitive with products produced by the Company. Intersept is now being used in more than a dozen product categories. Porter Paints, a division of Courtaulds Coatings, Inc., has a line of Portersept(R) brand paints and sealers containing Intersept, and has added an antimicrobial adhesive for vinyl wallcoverings to its product offerings. General Polymers Corporation incorporates Intersept into certain of its epoxy and terrazzo flooring systems. USG Interiors, Inc. has utilized Intersept in its ceiling tile products. In 1993, IRC signed a license agreement with SnyderGeneral Corporation, allowing the use of Intersept in air filter products produced by the licensee. The licensing arrangements are components of the Company's Envirosense program, a program designed to bring the proprietary characteristics of Intersept to bear on a group of closely related workplace environmental issues: Indoor Air Quality (IAQ), Sick Building Syndrome(SBS) and Building Related Illness (BRI). Through a growing consortium of partners, some marketing their own Intersept-enhanced products, the Company hopes to contribute substantially to the resolution of these workplace concerns for the benefit of its customers. Experience to date indicates that Intersept provides residual antimicrobial protection at a high level of effectiveness over long periods of time with relatively moderate toxicity and, consequently, has commercial potential in foreign and domestic markets for many applications other than the products now being sold. Other leading potential applications include vinyl products, plastic furniture, tile and grout products, caulking compounds, and a variety of polymer concrete and polymeric products, such as bathtubs, showers and countertops. Further tests are being conducted to evaluate the biocidal efficacy of Intersept in these and other applications. Successful commercial development of Intersept in other products is subject not only to the usual competitive and marketing factors involved in new product development, but also to registration requirements under domestic and foreign laws, including the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA); and the various uses and claims for each product utilizing Intersept are subject to review and approval by governmental agencies before marketing. Intersept is registered with the U.S. Environmental Protection Agency (EPA) for a variety of uses and certain specific product claims. However, a number of proposed uses and claims have not been registered, and the Company cannot predict with certainty whether these uses and claims will be accepted by the EPA. Intersept has been approved by regulatory authorities in the United Kingdom for incorporation into carpet products produced at the Company's U.K. facility, products which can then be marketed and distributed throughout the European Community. The Company continues to seek approvals to sell Intersept in its additive form in various foreign countries, and approval in Japan was obtained in 1993. BACKLOG The Company's backlog of unshipped orders was approximately $65,400,000 at January 2, 1994, compared to approximately $63,000,000 at January 3, 1993. Backlog, historically, is subject to significant 6 8 fluctuations due primarily to the timing of orders for individual large projects and currency fluctuations. All of the backlog of orders at January 2, 1994 is expected to be shipped during the current fiscal year. The Company is less dependent on backlog than in the past due to the increase in the percentage of orders shipped from inventory. PATENTS AND TRADEMARKS The Company owns numerous patents in the United States and abroad on its modular carpet and manufacturing processes and on the use of its Intersept antimicrobial chemical agent in various products. The Company also holds numerous United States and foreign patent applications relating to its manufacturing processes and the use of Intersept. The duration of United States patents is 17 years from issuance; the duration of patents issued in other countries varies from country to country. The Company considers its know-how and technology more important to its current business than patents and, accordingly, believes that expiration of existing patents or nonissuance of patents under pending applications would not have a material adverse effect on its operations. However, the Company maintains an active patent and trade secret program in order to protect its proprietary technology, know-how and trade secrets. The Company also owns numerous trademarks in the United States and abroad. Some of the more prominent registered trademarks of the Company include: Interface, Heuga, Intersept, GlasBac, System Six, Guilford of Maine and Bentley. Trademark registrations in the United States are valid for a period of 10 years and are renewable for additional 10-year periods as long as the mark remains in actual use. The duration of trademarks registered in other countries varies from country to country. RESEARCH, DEVELOPMENT AND DESIGN The Company maintains an active research, development and design staff of approximately 80 persons to improve products currently offered and to develop and design new products in all areas of its business. The Company also relies on the research and development efforts of its suppliers, particularly in the areas of fibers, yarns and modular carpet backing materials. FINANCIAL INFORMATION BY GEOGRAPHIC AREAS Note 14 of the Company's Consolidated Financial Statements sets forth information concerning the Company's sales, income and assets by geographic areas. See Item 8. EMPLOYEES At March 15, 1994, the Company employed a total of approximately 4,425 employees. Of such employees, approximately 1,925 were clerical, sales, supervisory and management personnel and the balance were manufacturing personnel. Certain of the Company's production employees in Australia and the United Kingdom are represented by unions. As required by the laws of the Netherlands, a Works Council, the members of which are Company employees, is required to be consulted by management with respect to certain matters relating to the Company's operations in that country, such as a change in control of Interface Europe B.V., and the approval of such Council is required for certain actions, including changes in compensation scales or employee benefits. Management believes that its relations with the Works Council and all of its employees are good. 7 9 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, their ages as of March 15, 1994, and principal positions with the Company are as follows. Executive officers serve at the pleasure of the Board of Directors.
NAME AGE PRINCIPAL POSITION(S) - ----------------- ---- --------------------------------------------------------- Ray C. Anderson 59 Chairman of the Board, President and Chief Executive Officer Brian L. DeMoura 48 Senior Vice President Charles R. Eitel 44 Senior Vice President and Director David Milton 58 Senior Vice President and Director Royce R. Renfroe 47 Senior Vice President and Director Don E. Russell 56 Senior Vice President and Director C. Edward Terry 59 Senior Vice President and Director Grant E. Todd 54 Vice President, Corporate Marketing Daniel T. Hendrix 39 Vice President -- Finance, Chief Financial Officer and Treasurer David W. Porter 47 Vice President, General Counsel and Secretary
Mr. Anderson founded the Company in 1973, and has served as the Company's Chairman and Chief Executive Officer since its founding. Mr. DeMoura became a Senior Vice President of the Company and President and Chief Executive Officer of Guilford in March 1994. (He has been nominated for election as a Director of the Company at the May 1994 Annual Meeting of Shareholders.) From August 1990 until joining the Company, Mr. DeMoura served as President and CEO of Fashion Fabrics of America, Inc., an Orangeburg, South Carolina based producer of fabrics for the upscale men's and women's apparel markets. (Mr. DeMoura plans to devote a portion of his time to Fashion Fabrics until May 31, 1994, to facilitate a smooth transition with his successor.) From December 1988 until January 1990, he served as Vice President and General Manager of the Yarn Sales Division of Doran Textiles, Inc., a Shelby, North Carolina based producer of novelty yarns for the apparel and home furnishing markets. Mr. Eitel joined the Company in November 1993 as President of IFS and Interface Americas, Inc. (a wholly-owned U.S. holding company), thereby assuming principal responsibility for the Company's modular carpet operations throughout the Americas. He became a Senior Vice President of the Company in February 1994. From July 1987 to November 1993, Mr. Eitel served as President of the Floor Coverings Division (based in Dalton, Georgia) of Collins & Aikman Corporation. Collins & Aikman is a diversified textile producer, headquartered in New York. Mr. Milton joined the Company in January 1992 as a Senior Vice President. Upon joining the Company, he also became President of Interface Asia-Pacific, Inc. (a wholly-owned U.S. holding company) and assumed responsibility for the Company's operations in Japan, China, Southeast Asia, Australia, New Zealand and the Pacific Islands. Prior to joining the Company, Mr. Milton was an independent management consultant. Mr. Renfroe has served, for the past five years, as a senior executive of Bentley Mills, becoming President and Chief Executive Officer in June 1990. The Company acquired Bentley Mills in June 1993, and Mr. Renfroe continues to serve as President and CEO of this subsidiary. Mr. Renfroe became a Senior Vice President of the Company in February 1994. Mr. Russell, a co-founder of the Company, has served in various executive capacities since 1973. He became a Senior Vice President in 1986. Mr. Russell assumed responsibility for the Company's European operations in 1991 when he became President of Interface Europe, Inc. (the Company's U.S. holding company for its subsidiaries in Europe). Mr. Russell has served as Managing Director of the Company's U.K. modular carpet subsidiary, Interface Europe Ltd. (formerly Interface Flooring Systems, Ltd.), since 1989, and as President and Chief Executive Officer of Interface Europe B.V. since November 1991. 8 10 Mr. Terry has been a Senior Vice President since joining the Company in 1987. He has served as President of Rockland, IRC and Pandel since 1987, 1988 and 1990, respectively. He served as President of IFS and Interface Americas, Inc. from February 1991 until November 1993. Mr. Todd joined the Company in 1977. He served as a Senior Vice President from 1986 until October 1993. He was President of IFS from 1989 until February 1991, and President and Chief Executive Officer of Guilford from February 1991 until October 1993. In his current position, Mr. Todd is responsible for coordinating the worldwide marketing activities of the Company. Mr. Hendrix joined the Company as Financial Manager in 1983. He became Treasurer of the Company in 1984, Chief Financial Officer in 1985 and Vice President -- Finance in 1986. Mr. Porter has served as Vice President and General Counsel since 1986, and Secretary since 1987. ITEM 2. PROPERTIES The Company's modular and broadloom carpet manufacturing facilities are located in Atlanta, LaGrange and West Point, Georgia; City of Industry, California; Athens, Tennessee; Scherpenzeel, the Netherlands; Shelf, England; Sanquhar, Scotland; Craigavon, Northern Ireland; Ontario (Belleville), Canada; and Picton, Australia. The Company's interior fabrics production facilities are located in Maine (Guilford, Eastport and Newport), Massachusetts (Dudley and East Douglas) and Michigan (Grand Rapids), and the Company's chemical and specialty product manufacturing plants are located in Georgia (Cartersville and Rockmart) and Alabama (Chatom). The Company owns all of its manufacturing facilities, except those in Grand Rapids, Michigan, Atlanta and Cartersville, Georgia, and City of Industry, California, which are leased. The Company believes that its manufacturing facilities are sufficient for its present operations. The Company maintains marketing offices in 94 locations in 35 countries and distribution facilities in 15 locations in six countries. Most of the marketing locations and many of the distribution facilities are leased. ITEM 3. LEGAL PROCEEDINGS The Company is not aware of any material pending legal proceedings involving it or any of its property. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The information concerning the market prices for the Company's Class A Common Stock and dividends on the Company's Common Stock included in Note 15 of the Notes to the Company's Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Information on page 49 of the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 33 through 35 of the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. 9 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The Consolidated Financial Statements and the Report of Independent Certified Public Accountants included on pages 36 through 48 of the Company's 1993 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the caption "Nomination and Election of Directors" in the Company's definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's 1993 fiscal year, is incorporated herein by reference. Pursuant to Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K, information relating to the executive officers of the Company is included in Item 1 of this Report. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Executive Compensation" in the Company's definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's 1993 fiscal year, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the caption "Principal Holders of Common Stock" in the Company's definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's 1993 fiscal year, is incorporated herein by reference. For purposes of determining the aggregate market value of the Company's voting stock held by non-affiliates, shares held of record by directors and executive officers of the Company have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be "affiliates" of the Company as that term is defined under federal securities laws. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the captions "Compensation Committee Interlocks and Insider Participation" (second paragraph only) and "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement for the Company's 1994 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's 1993 fiscal year, is incorporated herein by reference. 10 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The following Consolidated Financial Statements and Notes thereto of Interface, Inc. and subsidiaries and related Report of Independent Certified Public Accountants contained in the Company's 1993 Annual Report to Shareholders, are incorporated by reference in Item 8 of this Report: Consolidated Balance Sheets -- January 2, 1994 and January 3, 1993 Consolidated Statements of Income -- years ended January 2, 1994, January 3, 1993 and December 29, 1991 Consolidated Statements of Shareholders' Equity -- years ended January 2, 1994, January 3, 1993 and December 29, 1991 Consolidated Statements of Cash Flows -- years ended January 2, 1994, January 3, 1993 and December 29, 1991 Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants 2. FINANCIAL STATEMENT SCHEDULES The following Consolidated Financial Statement Schedules of Interface, Inc. and subsidiaries and related Report of Independent Certified Public Accountants are included as part of this Report (see Exhibit 13 on page 14): Report of Independent Certified Public Accountants Schedule II -- Amounts Receivable from Related Parties, and Underwriters, Promoters, and Employees other than Related Parties Schedule V -- Property, Plant and Equipment Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII -- Valuation and Qualifying Accounts and Reserves Schedule X -- Supplementary Income Statement Information 3. EXHIBITS The following exhibits are included as part of this Report:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------------- 2.1 Acquisition Agreement dated December 3, 1993, by and among the Company, Robert S. Weiner, Randall J. Hatch, Nancy O'Donnell, John O'Donnell, Jacqueline A. Colando, Traccton Corp., Prince Street Holding Company, Steven C. Andrade and Robert D. Williams (included as Exhibit 99(a) to the Company's registration statement on Form S-3, File No. 33-74076, previously filed with the Commission and incorporated herein by reference). 2.2 Agreement for Purchase of Capital Stock of Bentley Mills, Inc., dated June 8, 1993 (included as Exhibit 2.1 to the Company's current report on Form 8-K, filed with the Commission on July 7, 1993 and incorporated herein by reference). 3.1 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 (the "1992 10-K") 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).
11 13
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------------- 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 Form of Indenture between the Company and The Citizens & Southern National Bank (now known as NationsBank of Georgia, N.A.), as Trustee (including Specimen Debenture as Exhibit A) (included as Exhibit 4(a) to the Company's registration statement on Form S-3, File No. 33-23903, previously filed with the Commission and incorporated herein by reference). 4.3 Registration Rights Agreement (holders of Series A Preferred Stock), dated June 22, 1993 (included as Exhibit 4.2 to the Company's current report on Form 8-K, filed with the Commission on July 7, 1993 and incorporated herein by reference). 10.1 Factoring Agreement, dated April 19, 1989, between BancBoston Financial Company and Interface Flooring Systems, Inc. (included as Exhibit 10.1 to the Company's annual report on Form 10-K for the year ended December 30, 1990, previously filed with the Commission and incorporated herein by reference). 10.2 Promissory Note of the Company and Interface Flooring Systems, Inc., dated March 15, 1989, payable to the order of BancBoston Financial Company (included as exhibit 10.2 to the Company's annual report on Form 10-K for the year ended January 1, 1989 (the "1988 10-K"), previously filed with the Commission and incorporated herein by reference), and First Amendment, dated January 4, 1990, Second Amendment, dated June 13, 1991, and Third Amendment, dated June 15, 1992, to Promissory Note of the Company and Interface Flooring Systems, Inc., dated May 15, 1989, payable to BancBoston Financial Company (included as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended July 4, 1993 previously filed with the Commission and incorporated herein by reference). 10.3 Plan for Reimbursement of Medical and Dental Care Expenses, dated May 3, 1978 (included as Exhibit 10.19 to the Company's registration statement on Form S-1, File No. 2-82188, previously filed with the Commission and incorporated herein by reference).* 10.4 Salary Continuation Plan, dated May 7, 1982 (included as Exhibit 10.20 to the Company's registration statement on Form S-1, File No. 2-82188, previously filed with the Commission and incorporated herein by reference).* 10.5 Salary Continuation Agreement (included as Exhibit 10.23 to the Company's registration statement on Form S-1, File No. 2-82188, previously filed with the Commission and incorporated herein by reference).* 10.6 Amendment No. 3, dated July 28, 1992, to Interface, Inc. Key Employee Stock Option Plan dated March 1, 1983 (included as Exhibit 10.6 to the 1992 10-K, previously filed with the Commission and incorporated herein by reference).* 10.7 Interface, Inc. Key Employee Stock Option Plan (1993), effective as of March 1, 1993 (included as Exhibit 10.7 to the 1992 10-K, previously filed with the Commission and incorporated herein by reference), and Amendment No. 1 thereto, as approved by the Company on February 22, 1994.* 10.8 Interface, Inc. Offshore Stock Option Plan (included as Exhibit 10.15 to the Company's 1988 10-K, previously filed with the Commission and incorporated herein by reference), and Amendment No. 1 thereto (included as Exhibit 10.11 to the Company's annual report on Form 10-K for the year ended December 29, 1991, previously filed with the Commission and incorporated herein by reference).*
12 14
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------------- 10.9 Interface, Inc. Retirement Plan and Trust, dated April 14, 1986, by and between the Company and Layton T. Gordy and Daniel T. Hendrix, as Trustees, and Amendment No. 1 thereto dated October 28, 1987 (included as Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended April 3, 1988, previously filed with the Commission and incorporated herein by reference), and Amendment No. 2 thereto dated March 29, 1988 (included as Exhibit 10.11 to the Company's 1988 10-K, previously filed with the Commission and incorporated herein by reference).* 10.10 Interface, Inc. 401(k) Savings and Investment Plan and Trust, effective as of October 1, 1988 (included as Exhibit 10.12 to the Company's 198810-K, previously filed with the Commission and incorporated herein by reference).* 10.11 Voting Agreement, dated April 13, 1993, among certain shareholders of the Company (included as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended April 4, 1993, previously filed with the Commission and incorporated herein by reference). 10.12(a) Amended and Restated Credit Agreement, dated as of June 30, 1992, among the Company (and certain of its direct and indirect subsidiaries), Trust Company Bank and The First National Bank of Chicago (included as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended July 5, 1992, previously filed with the Commission and incorporated herein by reference), and Second Amended and Restated Credit Agreement, dated as of June 11, 1993, among the Company (and certain of its direct and indirect subsidiaries), Trust Company Bank and The First National Bank of Chicago (included as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended July 4, 1993, previously filed with the Commission and incorporated herein by reference). (b) First Amendment to Second Amended and Restated Credit Agreement, dated as of December 1, 1993, among the Company (and certain direct and indirect subsidiaries), Trust Company Bank and The First National Bank of Chicago (included as Exhibit 99(b) to the Company's registration statement on Form S-3, File No. 33-74076, previously filed with the Commission and incorporated herein by reference). 10.13(a) Loan Agreement, dated as of November 1, 1989, between Interface Flooring Systems, Inc. and West Point Development Authority (included as Exhibit 10.24(a) to the Company's annual report on Form 10-K for the year ended December 31, 1989 (the "1989 10-K"), previously filed with the Commission and incorporated herein by reference). (b) Indenture of Trust, dated as of November 1, 1989, between West Point Development Authority and Trust Company Bank, as Trustee (included as Exhibit 10.24(b) to the Company's 1989 10-K, previously filed with the Commission and incorporated herein by reference). (c) Letter of Credit Agreement, dated as of November 1, 1989, among Interface Flooring Systems, Inc., the Company and Trust Company Bank (included as Exhibit 10.24(c) to the Company's 1989 10-K, previously filed with the Commission and incorporated herein by reference). (d) Irrevocable Letter of Credit, dated November 2, 1989, established by Trust Company Bank in favor of Trust Company Bank, as Trustee, in the initial principal amount of $4,000,000 (included as Exhibit 10.24(d) to the Company's 1989 10-K, previously filed with the Commission and incorporated herein by reference). (e) Pledge and Security Agreement, dated as of November 1, 1989, by Interface Flooring Systems, Inc. in favor of Trust Company Bank (included as Exhibit 10.24(e) to the Company's 1989 10-K, previously filed with the Commission and incorporated herein by reference). (f) Security Deed and Security Agreement, dated as of November 1, 1989, between Interface Flooring Systems, Inc. and Trust Company Bank, as Credit Bank (included as Exhibit 10.24(f) to the Company's 1989 10-K, previously filed with the Commission and incorporated herein by reference).
13 15
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------------- 10.14 Revolving Credit Loan Agreement, dated as of August 5, 1991, between Interface Flooring Systems, Inc. and Trust Company Bank (included as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 29, 1991, previously filed with the Commission and incorporated herein by reference); and Amendment No. 1 thereto dated June 30, 1992 (included as Exhibit 10.19 to the Company's 1992 10-K, previously filed with the Commission and incorporated herein by reference); and Second Amendment, dated August 5, 1993 (included as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended October 3, 1993, previously filed with the Commission and incorporated herein by reference). 13 Printer's Proof of certain portions of Annual Report to Shareholders for the year ended January 2, 1994. 21 Subsidiaries of the Company (included as Exhibit 99(c) to the Company's registration statement on Form S-3, File No. 33-74076, previously filed with the Commission and incorporated herein by reference). 23 Consent of BDO Seidman to the incorporation by reference of certain reports dated February 16, 1994 into the prospectuses constituting parts of the Company's registration statements on Form S-8 (File Nos. 33-28305 and 33-28307) and on Form S-3 (File No. 33-74076). - --------------- * Compensatory plan or agreement required to be filed pursuant to Item 14(c) of this Report.
(B) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year covered by this Report. 14 16 INDEX TO FINANCIAL STATEMENT SCHEDULES
ITEM PAGE --------- ---- Report of Independent Certified Public Accountants........................................... 16 Schedule II -- Amounts Receivable from Related Parties, and Underwriters, Promoters, and Employees other than Related Parties ................................... 16 Schedule V -- Property, Plant and Equipment.................................................. 17 Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment........................................................... 18 Schedule VIII -- Valuation and Qualifying Accounts and Reserves.............................. 19 Schedule X -- Supplementary Income Statement Information..................................... 19
15 17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Interface, Inc. LaGrange, Georgia The audits referred to in our Report dated February 16, 1994 relating to the Consolidated Financial Statements of Interface, Inc. and subsidiaries, incorporated in Item 8 of the Form 10-K by reference to the Annual Report to Shareholders for the fiscal year ended January 2, 1994, included the audit of the Financial Statement Schedules listed in the accompanying index. These Financial Statement Schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these Financial Statement Schedules. In our opinion, such Schedules present fairly, in all material respects, the information set forth therein. BDO SEIDMAN Atlanta, Georgia February 16, 1994 INTERFACE, INC. AND SUBSIDIARIES SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES, AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Deductions Balance at end of period Balance at -------------------------- -------------------------- beginning of Amounts Amounts Not Name of debtor period Additions collected written off Current current - -------------- -------------- ------------- ------------ ------------- ------------ ------------ C. Edward Terry -- $330,924(a) -- -- $330,924 -- ============== ============= ========================== ========================== - ------------------ (a) In November 1993, the Company extended C. Edward Terry, a director and executive officer of the Company, an advance of $330,924 in connection with Mr. Terry's relocation from LaGrange to Atlanta, Georgia. The advance, together with interest at the rate of 7% per annum, is repayable upon the sale of Mr. Terry's residential property in LaGrange, Georgia. The Company has the option to purchase the property in exchange for forgiveness of the debt owed by Mr. Terry.
16 18 INTERFACE, INC. AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
BALANCE AT BALANCE AT BEGINNING ADDITIONS END OF CLASSIFICATION OF YEAR AT COST(a) RETIREMENTS TRANSFERS YEAR - --------------------------------------------- ---------- ---------- ----------- --------- ---------- (IN THOUSANDS) Year ended January 2, 1994: Land....................................... $ 7,522 $ 421 $ (26) $ -- $ 7,917 Building................................... 69,617 1,841 (660) (4,616) 66,182 Machinery and equipment.................... 134,984 25,227(b) (3,948) 6,722 162,985 Construction-in-process.................... 5,642 1,221 (40) (2,106) 4,717 ---------- ---------- ----------- --------- ---------- $ 217,765 $ 28,710 $ (4,674) $ -- $ 241,801 ---------- ---------- ----------- --------- ---------- ---------- ---------- ----------- --------- ---------- Year ended January 3, 1993: Land....................................... $ 7,973 $ (451) $ -- $ -- $ 7,522 Building................................... 70,335 (951) (83) 316 69,617 Machinery and equipment.................... 120,835 10,365 (1,291) 5,075 134,984 Construction-in-process.................... 7,651 4,757 (1,375) (5,391) 5,642 ---------- ---------- ----------- --------- ---------- $ 206,794 $ 13,720 $(2,749) $ -- $ 217,765 ---------- ---------- ----------- --------- ---------- ---------- ---------- ----------- --------- ---------- Year ended December 29, 1991: Land....................................... $ 7,859 $ 114 $ -- $ -- $ 7,973 Building................................... 63,231 7,042 (109) 171 70,335 Machinery and equipment.................... 117,110 4,261 (2,291) 1,755 120,835 Construction-in-process.................... 5,089 4,488 -- (1,926) 7,651 ---------- ---------- ----------- --------- ---------- $ 193,289 $ 15,905 $(2,400) $ -- $ 206,794 ---------- ---------- ----------- --------- ---------- ---------- ---------- ----------- --------- ---------- - --------------- (a) Includes changes in foreign currency exchange rates and the effects of the adoption of SFAS 109. (b) Includes the acquisitions of Bentley Mills and the Stevens Linen Dudley Division.
17 19 INTERFACE, INC. AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND RETIREMENTS END OF CLASSIFICATION OF YEAR EXPENSES(a) OR SALES YEAR - ---------------------------------------------------- ---------- ----------- ----------- ---------- (IN THOUSANDS) Year ended January 2, 1994: Land improvements................................. $ 222 $ 66 $ -- $ 288 Building.......................................... 17,675 2,468 (450) 15,698 Machinery and equipment........................... 62,263 17,918 (3,486) 80,690 ---------- ----------- ----------- ---------- $ 80,160 $20,452 $(3,936) $ 96,676 ---------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- Year ended January 3, 1993: Land improvements................................. $ 234 $ (12) $ -- $ 222 Building.......................................... 14,422 3,272 (19) 17,675 Machinery and equipment........................... 52,732 10,389 (858) 62,263 ---------- ----------- ----------- ---------- $ 67,388 $13,649 $ (877) $ 80,160 ---------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- Year ended December 29, 1991: Land improvements................................. $ 178 $ 56 $ -- $ 234 Building.......................................... 9,502 4,987 (67) 14,422 Machinery and equipment........................... 42,484 12,191 (1,943) 52,732 ---------- ----------- ----------- ---------- $ 52,164 $17,234 $(2,010) $ 67,388 ---------- ----------- ----------- ---------- ---------- ----------- ----------- ---------- - --------------- (a) Includes changes in foreign currency exchange rates and the effects of the adoption of SFAS 109.
18 20 INTERFACE, INC. AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------ BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER DEDUCTIONS END OF OF YEAR EXPENSES(b) ACCOUNTS (DESCRIBE) YEAR ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Allowance for doubtful accounts: Year ended: January 2, 1994...................... $3,386 $4,026(c) $ -- $1,641(a) $5,771 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- January 3, 1993...................... $4,241 $2,120 $ -- $2,975(a) $3,386 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- December 29, 1991.................... $3,923 $2,761 $ -- $2,443(a) $4,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- - --------------- (a) Write off bad debt. (b) Includes changes in foreign currency exchange rates. (c) Includes Bentley Mills allowance of $1,300 at acquisiton date.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
- ------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B - ------------------------------------------------------------------------------------------------------ ITEM (a) CHARGED TO COSTS AND EXPENSES - ------------------------------------------------------------------------------------------------------ YEARS ENDED ------------------------------------------ JANUARY 2, JANUARY 3, DECEMBER 29, 1994 1993 1991 ---------- ---------- ------------ (IN THOUSANDS) Repairs and maintenance................................... $ 10,572 $9,211 $7,560 ---------- ---------- ------------ ---------- ---------- ------------ Advertising............................................... $ 3,685 $3,411 $2,698 ---------- ---------- ------------ ---------- ---------- ------------ - --------------- (a) Other Column A items are not listed because they are either shown in the Consolidated Financial Statements or their amounts are less than 1% of revenues for all periods. (All other Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are either not applicable or the required information is shown in the Company's Consolidated Financial Statements or the Notes thereto.)
19 21 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERFACE, INC. By: /s/ RAY C. ANDERSON ------------------------------------ Ray C. Anderson Chairman of the Board, President and Chief Executive Officer Date: March 30, 1994 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ray C. Anderson as attorney-in-fact, with power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - --------------------------------------------- ------------------------------- --------------- /s/ RAY C. ANDERSON Chairman of the Board, March 30, 1994 - --------------------------------------------- President and Chief Executive Ray C. Anderson Officer (Principal Executive Officer) /s/ DANIEL T. HENDRIX Vice President -- Finance, March 30, 1994 - --------------------------------------------- Chief Financial Officer and Daniel T. Hendrix Treasurer (Principal Financial and Accounting Officer) /s/ JAMES C. ABEGGLEN Director March 30, 1994 - --------------------------------------------- James C. Abegglen /s/ CHARLIE R. EITEL Director March 30, 1994 - --------------------------------------------- Charlie R. Eitel /s/ DAVID MILTON Director March 30, 1994 - --------------------------------------------- David Milton /s/ ROYCE R. RENFROE Director March 30, 1994 - --------------------------------------------- Royce R. Renfroe /s/ DON E. RUSSELL Director March 30, 1994 - --------------------------------------------- Don E. Russell /s/ C. EDWARD TERRY Director March 30, 1994 - --------------------------------------------- C. Edward Terry
20 22
SIGNATURE CAPACITY DATE - --------------------------------------------- ------------------------------- --------------- /s/ CARL I. GABLE Director March 30, 1994 - --------------------------------------------- Carl I. Gable /s/ ARIE GLIMMERVEEN Director March 30, 1994 - --------------------------------------------- Arie Glimmerveen /s/ J. SMITH LANIER, II Director March 30, 1994 - --------------------------------------------- J. Smith Lanier, II /s/ LEONARD G. SAULTER Director March 30, 1994 - --------------------------------------------- Leonard G. Saulter /s/ DAVID G. THOMAS Director March 30, 1994 - --------------------------------------------- David G. Thomas /s/ CLARINUS C.Th. van ANDEL Director March 30, 1994 - --------------------------------------------- Clarinus C.Th. van Andel
21 23 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ----------------------------------------------------------------------------------- 10.7 Interface, Inc. Key Employee Stock Option Plan (1993), effective as of March 1, 1993 (included as Exhibit 10.7 to the 1992 10-K, previously filed with the Commission and incorporated herein by reference), and Amendment No. 1 thereto, as approved by the Company on February 22, 1994.* 13 Printer's Proof of certain portions of Annual Report to Shareholders for the year ended January 2, 1994. 23 Consent of BDO Seidman to the incorporation by reference of certain reports dated February 16, 1994 into the prospectuses constituting parts of the Company's registration statements on Form S-8 (File Nos. 33-28305 and 33-28307) and on Form S-3 (File No. 33-74076). - --------------- * Compensatory plan or agreement required to be filed pursuant to Item 14(c) of this Report.
EX-10.7 2 INTERFACE AMEND NO. 1 TO KEY EMPLOYEE STOCK OPTION 1 EXHIBIT 10.7 AMENDMENT NO. 1 TO INTERFACE, INC. KEY EMPLOYEE STOCK OPTION PLAN (1993) WHEREAS, effective March 1, 1993, Interface, Inc. (the "Company") adopted the Interface, Inc. Key Employee Stock Option Plan (1993) (the "Plan"); and WHEREAS, the Company desires to amend the Plan to increase the maximum number of shares of Common Stock with respect to which Options and Stock Appreciation Rights may be granted thereunder; NOW, THEREFORE, the following amendment to the Plan is hereby adopted, effective as of February 22, 1994. Section 1.3(a) of the Plan is hereby amended by deleting the existing provision in its entirety and substituting the following therefore: "The aggregate number of shares of Class A or Class B Common Stock with respect to which Options and Stock Appreciation Rights may be granted shall not exceed a total of 1,050,000 shares in the aggregate, subject to possible adjustment in accordance with Section 4.1." AS APPROVED BY THE BOARD OF DIRECTORS OF INTERFACE, INC. ON FEBRUARY 22, 1994. INTERFACE, INC. By: /s/ DAVID W. PORTER ------------------------------------ David W. Porter Vice President and Secretary EX-13 3 INTERFACE MD&A & FINANCIALS 1 EXHIBIT 13 Interface, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS During 1993, the Company experienced overall sales growth as a result of the acquisition of Bentley Mills, Inc. in June 1993 and increased sales in the interior fabrics and chemical operations. These sales increases were offset somewhat by the recessionary climate in most of the major carpet markets, particularly in Europe and Japan, which experienced sales declines. Throughout 1993, the Company continued to reduce selling, general, and administrative expenses as a percentage of sales due to strict cost control measures begun in 1991 in response to the general worldwide recession and as a result of the acquisition of Bentley Mills, Inc. The Company plans to continue its cost containment efforts while making selective investments in emerging geographical markets, new products, employee training and quality improvement. The capital expenditures program will focus on supporting innovations and reducing costs. The following table shows, as a percentage of net sales, certain items included in the Company's consolidated statements of income for each of the three years through the period ended January 2, 1994.
FISCAL YEAR ENDED ------------------------- 1/2/94 1/3/93 12/29/91 =========================================================================== Net sales 100.0% 100.0% 100.0% Cost of sales 68.4 68.0 67.7 - --------------------------------------------------------------------------- GROSS PROFIT ON SALES 31.6 32.0 32.3 Selling, general and administrative expenses 24.2 25.2 25.8 - --------------------------------------------------------------------------- OPERATING INCOME 7.4 6.8 6.5 Other expense, net 4.0 3.7 4.1 - --------------------------------------------------------------------------- INCOME BEFORE TAXES 3.4 3.1 2.4 Taxes on income 1.2 1.0 .9 - --------------------------------------------------------------------------- NET INCOME 2.2 2.1 1.5 Preferred dividends .1 - - - --------------------------------------------------------------------------- Income applicable to common shareholders 2.1% 2.1% 1.5% ===========================================================================
FISCAL 1993 COMPARED WITH FISCAL 1992 In fiscal 1993, the Company's net sales increased $31 million (5.2%) compared with fiscal 1992. The increase was due in substantial part to the June 1993 acquisition of Bentley Mills, Inc. which had sales of $112 million for fiscal 1992. The Company also achieved a unit volume increase of approximately 6% in its interior fabrics and chemical operations. The 33 2 increase in net sales was offset somewhat by a strengthening U.S. dollar, the Company's reporting currency, against the major currencies of its European operation, which caused net sales to be 5.1% lower than otherwise would have been the case. Cost of sales as a percentage of net sales increased slightly to 68.4% in 1993, compared with 68.0% in 1992 due primarily to reduced efficiencies in the carpet tile manufacturing operations as a result of a 1.2 million square yard decline in unit volume. In addition, the acquisition of Bentley also contributed to the increased cost of sales due to Bentley's historical cost of sales having been 75.0% in 1992, compared with 68.0% in 1992 for the Company. Selling, general and administrative expenses as a percentage of sales decreased to 24.2% in 1993 from 25.2% in 1992 primarily as a result of the acquisition of Bentley in 1993. Bentley's selling, general, and administrative costs as a percentage of sales were 15.7%, compared to 25.2% for the Company in 1992. The decline was also the result of cost controls initiated in 1991 which reduced discretionary marketing cost and fixed overhead expenditures. Other expense increased $2.9 million in 1993, primarily due to increased bank debt of $60.0 million related to the acquisition of Bentley in June 1993. During fiscal 1993, the Company's effective income tax rate increased to 35.0% from 33.9% in 1992, primarily due to an increase in the U.S. statutory rate to 35.0%. In 1993, there was no utilization of net operating loss carryforwards as compared to $2.6 million utilized in 1992. The rate increase was offset by the utilization of excess foreign tax credit carryovers of $1.5 million in 1993. As a result of the aforementioned factors, the Company's net income increased 13.1% to $13.8 million in 1993 from $12.3 million in 1992. FISCAL 1992 COMPARED WITH FISCAL 1991 In fiscal 1992, the Company's net sales increased $12.3 million (2.1%) compared with fiscal 1991. The increase was due primarily to a unit volume increase of approximately 19% in the Company's interior fabrics and chemical operations. The weakening of the U.S. dollar, the Company's reporting currency against the major currencies of its foreign markets, accounted for an additional 2% increase in net sales. The overall increase in net sales was offset somewhat by a 3% decrease in sales volume in the Company's carpet tile operations in the United Kingdom, Continental Europe, and North America. These major markets continued to be adversely impacted by weak economic conditions, particularly in Europe, where the economic uncertainty has been aggravated by a climate of currency instability. Cost of sales as a percentage of net sales increased slightly to 68% in 1992 compared with 67.7% in 1991 due primarily to (i) a .7% increase in costs associated with the Company's Netherlands manufacturing facilities, which experienced unfavorable foreign currency exchange rates in its export markets, particularly the United Kingdom, Spain, Italy, and Sweden, (ii) reduced efficiencies in the carpet tile manufacturing operations as a result of a 1.2 million square yard decline in unit volumes, and (iii) competitive price pressures in most major markets. During this period the average selling price per square yard of carpet decreased by approximately 1.9%. These factors were offset somewhat by improved manufacturing efficiencies in the interior fabrics and chemical businesses, where unit volume increased 19% over the prior year. Selling, general and administrative expenses as a percentage of net sales decreased slightly to 25.2% in 1992 from 25.8% in 1991 primarily as a result of (i) continued cost control measures implemented in 1991 which reduced discretionary spending, particularly for marketing expenses (down 4%), (ii) rightsizing the workforce, particularly in Europe, where the payroll was decreased by 20% compared to 1990 levels, and (iii) an increase in net sales. Other expense decreased $1.7 million in 1992, primarily due to a reduction in bank debt ($143 million at year-end 1992 compared to $159 million at year-end 1991) coupled with a decline in U.S. interest rates. During fiscal 1992, the Company's effective income tax rate decreased to 33.9% from 37.8% in 1991. The principal reason for the decrease was a reduction of $832,000 in non-deductible depreciation expense related to assets acquired in previous acquisitions. Additionally, utilization of a net operating loss carryforward of $2.6 million to offset current taxable income in Japan contributed to the reduction. As a result of the aforementioned factors, the Company's net income increased 37.3% to $12.3 million in 1992 from $8.9 million in 1991. 34 3 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash over the last three fiscal years have been funds provided by operating activities and proceeds from additional long-term debt. In 1993, operating activities provided $40.6 million of cash compared to $41.7 million and $31.1 million in 1992 and 1991, respectively. The primary use of cash during these three years has been (i) additions to property and equipment at all of the Company's manufacturing facilities, (ii) acquisitions of businesses, and (iii) cash dividends. The addition to property and equipment required cash outlays of $50.5 million, while the acquisitions of businesses required $16.6 million, and dividends required $13.3 million. Management believes these expenditures will result in an expanded market presence and improved efficiency in the Company's production and distribution. In June 1993, the Company amended and restated its existing revolving credit and term loan facilities, and issued $25.0 million in preferred stock in conjunction with the purchase of Bentley Mills, Inc. The amendment, among other things, increased the outstanding term loans by $55.0 million and reduced the revolving credit facility by approximately $20.0 million. As of January 2, 1994, the Company had long-term debt of $79.3 million under its $125.0 million revolving lines of credit, $121.5 million of term debt and $103.9 million in convertible subordinated debt. The Company believes that it has minimized its exposure to interest rate increases because over one-half of its debt is at fixed interest rates. The Company utilizes foreign hedging contracts in order to match anticipated cash flows from foreign operations with local currency debt obligations. Due to the strengthening of the U.S. dollar against the Dutch guilder and the British pound sterling, the Company, as of January 2, 1994, recognized a $15.1 million decrease in its foreign translation adjustment account. At the end of fiscal 1993, the Company estimated capital expenditure requirements of approximately $20.0 million for 1994, and had purchase commitments of $5.2 million. Management believes that the cash provided by operations and long-term borrowing arrangements will provide adequate funds for current commitments and other requirements in the foreseeable future. Bentley Mills' City of Industry, California plant is located in the San Gabriel Valley, which has been generally designated as a Superfund site. Neither the Environmental Protection Agency nor the potentially responsible party ("PRP") group has asserted that Bentley is a PRP in connection with such Superfund site. IMPACT OF INFLATION Petroleum-based products comprise approximately 90% of the cost of raw materials used by the Company in manufacturing. The Company historically has been able to offset increases in the cost of such petroleum-based products with finished product price increases. Management cannot predict the extent to which it will be able to pass through any future cost increases. RECENT ACCOUNTING PRONOUNCEMENTS The Company has no post-retirement benefit plans nor any material post-employment benefits as covered by SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other than Pensions," and SFAS No. 112, "Employers' Accounting for Post-employment Benefits."
EARNINGS & CASH DIVIDENDS TOTAL ASSETS TOTAL CAPITALIZATION (in millions of dollars) (in millions of dollars) (in millions of dollars) (Graph) (Graph) (Graph)
35 4 Interface, Inc. and Subsidiaries Consolidated Balance Sheets
(IN THOUSANDS, EXCEPT SHARE DATA) 1/2/94 1/3/93 ====================================================================================================================== ASSETS Current Cash and cash equivalents $ 4,674 $ 5,824 Escrowed and restricted funds 4,015 4,419 Accounts receivable 124,170 109,343 Inventories 116,041 101,390 Prepaid expenses 15,078 10,712 Deferred income taxes 2,539 743 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 266,517 232,431 Property and equipment, less accumulated depreciation 145,125 137,605 Miscellaneous 35,534 28,014 Deferred income taxes 5,976 2,749 Excess of cost over net assets acquired 189,167 133,321 - ---------------------------------------------------------------------------------------------------------------------- $ 642,319 $ 534,120 ====================================================================================================================== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 56,043 $ 43,530 Accrued expenses 52,744 38,642 Current maturities of long-term debt 17,155 11,425 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 125,942 93,597 Long-term debt, less current maturities 187,712 131,563 Convertible subordinated debentures 103,925 103,925 Deferred income taxes 17,856 18,686 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 435,435 347,771 Redeemable preferred stock 25,000 - Common stock 2,104 2,086 Additional paid-in-capital 83,989 82,110 Retained earnings 125,960 117,174 Foreign currency translation adjustment (12,423) 2,725 Treasury stock, 3,600,000 Class A shares, at cost (17,746) (17,746) - ---------------------------------------------------------------------------------------------------------------------- $ 642,319 $ 534,120 ======================================================================================================================
See accompanying notes to consolidated financial statements. 36 5 Interface, Inc. and Subsidiaries Consolidated Statements of Income
FISCAL YEAR ENDED -------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1/2/94 1/3/93 12/29/91 ====================================================================================================================== NET SALES $ 625,067 $ 594,078 $ 581,786 Cost of sales 427,321 404,130 393,733 - ---------------------------------------------------------------------------------------------------------------------- GROSS PROFIT ON SALES 197,746 189,948 188,053 Selling, general and administrative expenses 151,576 149,509 150,100 - ---------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 46,170 40,439 37,953 - ---------------------------------------------------------------------------------------------------------------------- Other expense (income): Interest expense 22,840 21,894 23,253 Other 2,026 (16) 370 - ---------------------------------------------------------------------------------------------------------------------- 24,866 21,878 23,623 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES ON INCOME 21,304 18,561 14,330 Taxes on income 7,455 6,311 5,409 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME 13,849 12,250 8,921 Preferred stock dividends 913 - - - ---------------------------------------------------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 12,936 $ 12,250 $ 8,921 ====================================================================================================================== PRIMARY EARNINGS PER COMMON SHARE $ 0.75 $ 0.71 $ 0.52 ======================================================================================================================
See accompanying notes to consolidated financial statements. 37 6 Interface, Inc. and Subsidiaries Consolidated Statements of Cash Flows
FISCAL YEAR ENDED ------------------------------------------ (IN THOUSANDS) 1/2/94 1/3/93 12/29/91 ======================================================================================================================= OPERATING ACTIVITIES NET INCOME $ 13,849 $12,250 $ 8,921 Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization 24,512 22,257 19,723 Deferred income taxes (8,465) (9,059) 2,984 Other - (2,315) - Cash provided by (used for) Accounts receivable (1,569) 8,324 6,179 Inventories 3,147 8,976 894 Prepaid expenses and other (3,762) (848) (3,578) Accounts payable and accrued expenses 12,870 2,111 (3,998) - ---------------------------------------------------------------------------------------------------------------------- 40,582 41,696 31,122 - ---------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (20,639) (14,476) (15,375) Acquisitions of businesses (16,609) - - Changes in escrowed and restricted funds 404 (560) (1,519) Other (5,639) (2,980) (524) - ---------------------------------------------------------------------------------------------------------------------- (42,483) (18,016) (17,418) - ---------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Long-term borrowings - - 7,639 Principal payments on long-term debt (11,500) (12,438) (19,100) Net borrowings (repayments) under lines-of-credit 15,573 (6,171) 818 Proceeds from issuance of common stock 1,897 344 34 Dividends paid (5,063) (4,142) (4,136) Other - (1,562) - - ---------------------------------------------------------------------------------------------------------------------- 907 (23,969) (14,745) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating, investing and financing activities (994) (289) (1,041) Effect of exchange rate changes on cash (156) (404) (152) - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Net increase (decrease) (1,150) (693) (1,193) Balance at beginning of year 5,824 6,517 7,710 - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT END OF YEAR $ 4,674 $ 5,824 $ 6,517 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 38 7 Interface, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Interface, Inc. ("the Company") and its subsidiaries. All material intercompany accounts and transactions are eliminated. TRANSLATION OF FOREIGN CURRENCIES AND HEDGING TRANSACTIONS The financial position and results of operations of the Company's foreign subsidiaries are measured generally using local currencies as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each year end. Income statement items are translated at the average rate of exchange prevailing during the year. The resulting translation adjustments are recorded in the foreign currency translation adjustment account. In the event of a divestiture of a foreign net investment or an investment being no longer considered long-term in nature, the related foreign currency translation results are reversed from equity to income. Other foreign currency transaction gains and losses are also included in income. Exchange gains and losses are not material in amount in any year. The Company has entered into foreign currency hedging transactions to reduce its exposure to adverse fluctuations in foreign exchange rates. While the hedging instruments (principally forward exchange contracts) are subject to gains or losses from changes in exchange rates, these gains or losses would generally be offset by the exposures being hedged. Realized and unrealized gains and losses on those hedging instruments that are designated and effective as hedges of probable anticipated and firmly committed foreign currency transactions are deferred and recognized in income in the same period as the hedged transaction. INVENTORIES Inventories are valued at the lower of cost (standards which approximate actual cost on a first-in, first-out basis) or market. Maintenance, operating and office supplies are generally not inventoried. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the following estimated useful lives: buildings and improvements - ten to fifty years; furniture and equipment - three to twelve years. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of purchase price over fair value of net assets of acquired businesses arises in connection with business combinations accounted for as purchases and is amortized on a straight-line basis, generally over forty years. Accumulated amortization amounted to approximately $20,302,000 and $16,834,000 at January 2, 1994 and January 3, 1993, respectively. TAXES ON INCOME Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." EARNINGS PER COMMON SHARE AND DIVIDENDS Earnings per common 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 each year. The computation does not include a negligible dilutive effect of stock options. Neither the Convertible Debentures nor the Preferred Stock issued during June 1993 was determined to be a common stock equivalent. In computing primary earnings per share, the preferred stock dividend reduces income applicable to common shareholders. Primary earnings per share are based upon 17,302,000 shares, 17,253,000 shares, and 17,230,000 shares for the years ended January 2, 1994, January 3, 1993, and December 29, 1991, respectively. For fiscal 1993, 1992 and 1991, fully diluted earnings per common share were antidilutive. For the purposes of computing earnings per share and dividends paid per share, the Company is treating as treasury stock (and therefore not outstanding) the shares that are owned by a wholly-owned subsidiary (3,600,000 Class A shares, recorded at cost). FISCAL YEAR The Company's fiscal year ends on the Sunday nearest December 31. The fiscal years ended January 2, 1994 and December 29, 1991, comprised 52 weeks and the fiscal year ended January 3, 1993, comprised 53 weeks. 39 8 NOTE 2 - BUSINESS ACQUISITIONS The Company, through a series of stock purchases in June 1993, acquired 100% of the outstanding capital stock of Bentley Mills, Inc. ("Bentley"), a U.S. company engaged in the manufacturing and distribution of modular broadloom carpet, for the aggregate consideration of $34.0 million, which was comprised of $9.0 million in cash and $25.0 million of newly issued Series A Cumulative Convertible Preferred Stock (see Note 11). As part of the overall transaction, the Company also repaid Bentley's existing bank debt. The Company accounted for this transaction as a purchase. At the acquisition date, the fair value of the net liabilities of Bentley exceeded the fair value of its net assets by approximately $32.2 million. Accordingly, the excess of the purchase price ($34.0 million) over the fair value of net assets acquired was approximately $66.2 million and is being amortized over 40 years. The results of operations of Bentley have been included within the consolidated financial statements since June 1, 1993. The following table summarizes the unaudited pro forma consolidated results of operation of the Company as though the Bentley acquisition had occurred at the beginning of each of the fiscal years presented and does not purport to be indicative of what would have occurred had the acquisitions been made as of those dates or of results that may occur in the future. The pro forma amounts give effect to appropriate adjustments for the fair value of the net assets acquired, amortization of the excess of the cost over the net assets acquired, interest expense, intercompany transactions, and the issuance of preferred shares.
FISCAL YEAR ENDED (IN THOUSANDS, --------------------- EXCEPT PER SHARE DATA) 1/2/94 1/3/93 ======================================================== Net sales $ 683,083 $706,261 - -------------------------------------------------------- Net income 15,685 16,314 - -------------------------------------------------------- Income applicable to common shareholders 13,897 14,644 - -------------------------------------------------------- Primary earnings per common share .80 .85 ========================================================
In February 1993, the Company acquired the assets of the fabric division of Stevens Linen Associates, Inc., based in Dudley, Massachusetts, for $4.9 million. In January 1993, the Company acquired (through certain of its U.S. and French subsidiaries), for $1.3 million, the patents, know-how and production equipment of Servoplan, S.A., a French company, relating to the low-profile access flooring system developed by Servoplan. In December 1993, the Company entered into an agreement to acquire Prince Street Technologies, Ltd. ("PST") and Prince Street Holding Company ("PSHC") located in Atlanta, Georgia. The acquisition will be completed through the issuance of 674,953 shares of Class A Common Stock of the Company for 100% of the outstanding shares of PST/PSHC, and will be accounted for as a purchase. Total assets, revenues, and net income of PST/PSHC for the year ended October 3, 1993 (the most recent fiscal year end) were approximately $12.3 million, $30.7 million and $.7 million, respectively. NOTE 3 - CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following:
(IN THOUSANDS) 1/2/94 1/3/93 ======================================================= Cash $4,045 $5,549 Cash equivalents 629 275 - ------------------------------------------------------- TOTAL $4,674 $5,824 =======================================================
Cash equivalents, carried at costs which approximate market, consist of short-term, highly liquid investments which are readily convertible into cash and have initial maturities of three months or less. The Company does not believe it is exposed to any significant credit risk on cash and cash equivalents. Under the Company's cash management program, checks in transit are not considered reductions of cash or accounts payable until presented to the bank for payment. At January 2, 1994 and January 3, 1993, checks not yet presented to the bank totalled approximately $9.7 million and $10.6 million, respectively. In accordance with a Workers' Compensation self-insurance arrangement in the State of Maine, the Company is required by state law to maintain a trust account to pay Workers' Compensation claims. At January 2, 1994 and January 3, 1993, the trust account had balances of approximately $4.0 million and $4.4 million, respectively, and was segregated from cash and cash equivalents and reflected as escrowed and restricted funds at January 2, 1994 and January 3, 1993. Cash payments for interest amounted to approximately $23.4 million, $21.1 million and $23.3 million for the years ended January 2, 1994, January 3, 1993 and December 29, 1991, respectively. Income tax payments amounted to 40 9 approximately $16.3 million, $8.9 million and $11.3 million for the years ended January 2, 1994, January 3, 1993 and December 29, 1991, respectively. NOTE 4 - INVENTORIES Inventories are summarized as follows:
(IN THOUSANDS) 1/2/94 1/3/93 ======================================================== Finished Goods $ 64,497 $ 55,527 Work-in-Process 20,010 21,882 Raw Materials 31,534 23,981 - -------------------------------------------------------- TOTAL $116,041 $101,390 ========================================================
NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
(IN THOUSANDS) 1/2/94 1/3/93 ======================================================== Land $ 7,917 $ 7,552 Buildings and improvements 66,182 69,617 Equipment 162,985 134,984 Construction in process 4,717 5,642 - -------------------------------------------------------- 241,801 217,765 Accumulated depreciation 96,676 80,160 - -------------------------------------------------------- $145,125 $137,605 ========================================================
NOTE 6 - ACCRUED EXPENSES Accrued expenses consisted of the following:
(IN THOUSANDS) 1/2/94 1/3/93 ======================================================== Income taxes $ 9,846 $ 3,741 Compensation 14,209 12,615 Interest 3,437 4,044 Other 25,252 18,242 - -------------------------------------------------------- TOTAL $52,744 $38,642 ========================================================
NOTE 7 - LONG-TERM DEBT Long-term debt consisted of the following:
(IN THOUSANDS) 1/2/94 1/3/93 ======================================================== Secured term loans $121,500 $ 78,000 Revolving credit agreements 79,260 60,276 Industrial revenue bonds 2,400 3,800 Other 1,707 912 - -------------------------------------------------------- TOTAL LONG-TERM DEBT 204,867 142,988 LESS CURRENT MATURITIES 17,155 11,425 - -------------------------------------------------------- LONG-TERM DEBT $187,712 $131,563 ========================================================
During June 1993, the Company entered into an agreement to amend and restate its revolving credit and term loan facility. The amendment provides for, among other things, a decrease in the revolving credit notes from $145 million to $125 million and an increase in the secured term loans from approximately $80 million to $135 million. Additionally, the facility, which originally was to expire during 1996 has been extended to June 30, 1999. The amended and restated revolving credit and secured term loans are collateralized by substantially all of the outstanding stock of the Company's operating subsidiaries (except certain foreign subsidiaries, for which only 66% of the outstanding stock was pledged). The secured term loans are payable quarterly, in increasing amounts, plus interest through June 1999. Interest is charged, at the Company's option, at a rate based on either the bank's certificate of deposit rate (3.5%), LIBOR (3.3%) plus 3/4%, up to 1.5% depending upon the Company's ability to meet certain performance criteria, or the bank's prime lending rate (6%). The Company is also required to pay a commitment fee ranging from 3/8% to 1/2% per annum on the unused portion of the revolving credit loans depending upon the Company's ability to meet certain performance criteria. The agreements require prepayment from specified excess cash flows or proceeds from certain asset sales and provide for restrictions which, among other things, require maintenance of certain financial ratios, restrict encumbrance of assets, limit the payment of dividends, and prohibit the retirement of its Convertible Subordinated Debentures. At January 2, 1994, approximately $11.4 million of the Company's retained earnings were unrestricted and available for payment of dividends under the most restrictive terms of the agreement. 41 10 Future maturities of long-term debt based on fixed payments (amounts could be higher if excess cash flows or asset sales require prepayment of debt under the revolving credit agreements) are as follows:
FISCAL YEAR (IN THOUSANDS) ======================================================= 1994 $17,155 1995 17,900 1996 18,400 1997 21,400 1998 22,400 Thereafter 107,612 - ------------------------------------------------------- TOTAL $204,867 =======================================================
Additionally, the Company maintains approximately $25 million in revolving lines of credit through several of its subsidiaries. Interest is generally charged at the prime lending rate. Approximately $7.7 million and $4.1 million were outstanding under these lines and are included within accounts payable in the consolidated balance sheets at January 2, 1994 and January 3, 1993, respectively. NOTE 8 - TAXES ON INCOME Provisions for federal, foreign and state income taxes in the consolidated statements of income consisted of the following components:
FISCAL YEAR ENDED --------------------------- (IN THOUSANDS) 1/2/94 1/3/93 12/29/91 ======================================================== Current: Federal $ 6,115 $ 4,880 $ 2,087 Foreign 6,028 3,196 (457) State 1,165 1,352 795 - -------------------------------------------------------- 13,308 9,428 2,425 - -------------------------------------------------------- Deferred: Federal (1,271) (2,606) 1,598 Foreign (4,340) (15) 1,132 State (242) (496) 254 - -------------------------------------------------------- (5,853) (3,117) 2,984 - -------------------------------------------------------- TOTAL TAXES ON INCOME $ 7,455 $ 6,311 $ 5,409 ========================================================
Income before taxes on income consisted of the following:
FISCAL YEAR ENDED --------------------------- (IN THOUSANDS) 1/2/94 1/3/93 12/29/91 ======================================================== U.S. Operations $17,717 $ 8,793 $10,501 Foreign Operations 3,587 9,768 3,829 - -------------------------------------------------------- TOTAL $21,304 $18,561 $14,330 ========================================================
Deferred income taxes for the year ended December 29, 1991, result from "timing differences" in the recognition of income and expense for tax and financial reporting purposes and have not been restated for the provisions of SFAS 109, which was adopted during 1992. Principal items making up the deferred tax provisions for fiscal 1991 are as follows:
(IN THOUSANDS) ======================================================= Excess of tax over book depreciation $2,560 Other 424 - ------------------------------------------------------- TOTAL $2,984 =======================================================
Deferred income taxes for the years ended January 2, 1994, and January 3, 1993, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The sources of the temporary differences and their effect on the net deferred tax liability at January 2, 1994 and January 3, 1993, are as follows:
1/2/94 1/3/93 --------------------------------------------- (IN THOUSANDS) ASSETS LIABILITIES ASSETS LIABILITIES ======================================================================= Basis difference of property and equipment $ - $17,553 $ - $17,901 Net operating loss and foreign tax credit carryforwards 9,135 - 5,491 - Other differences in bases of assets and liabilities 2,539 303 743 785 Valuation Allowance (3,159) - (2,742) - - ----------------------------------------------------------------------- TOTAL $ 8,515 $17,856 $ 3,492 $18,686 =======================================================================
42 11 During the year ended January 2, 1994, the valuation allowance increased approximately $417,000, and for the year ended January 3, 1993, the valuation allowance decreased approximately $1.6 million. At January 3, 1993, the Company had approximately $1.5 million in foreign tax credits. Additionally, $24.4 million and $14.4 million in net operating losses within foreign subsidiaries are available for carryforward expiring at various times through 2001. The effective tax rate on income before taxes differs from the federal statutory rates. The following summary reconciles taxes at the federal statutory rates with the effective rates:
FISCAL YEAR ENDED ---------------------------- 1/2/94 1/3/93 12/29/91 ============================================================ TAXES ON INCOME AT STATUTORY RATES 35.0% 34.0% 34.0% Increase (reduction) in taxes resulting from: State income taxes, net of federal benefit 2.8 3.0 4.8 Amortization of excess of cost over net assets acquired and related purchase accounting adjustments 3.9 2.5 5.4 Differences in foreign taxes paid 2.0 (4.6) (7.5) U.S. utilization of foreign tax credit carryovers (7.2) - - Other (1.5) (1.0) 1.1 - ---------------------------------------------------------- TAXES ON INCOME AT EFFECTIVE RATES 35.0% 33.9% 37.8% ==========================================================
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $56.1 million at January 2, 1994. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred United States income tax liability is not practicable because of the complexities associated with its hypothetical calculation. Withholding taxes of approximately $2.8 million would be payable upon remittance of all previously unremitted earnings at January 2, 1994. NOTE 9 - EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have trusteed, defined benefit retirement plans ("Plans") which cover substantially all of their employees except those of Guilford, which has its own 401(k) plan. The benefits are generally based on years of service and the employee's average monthly compensation. Pension expense was approximately $1.5 million, $1.7 million and $1.6 million for the fiscal years January 2, 1994, January 3, 1993 and December 29, 1991, respectively. Assets exceeded accumulated benefits in certain plans and accumulated benefits exceeded assets in others during the fiscal years ended January 2, 1994 and January 3, 1993. The ranges of assumptions used for the actuarial determinations reflect the different economic environments within the various countries where the Plans exist. In 1993, the assumed rates of return on plan assets ranged from 6% to 8.5%, the measurement of the projected benefit obligation was based on assumed discount rates ranging from 6% to 7.5% and assumed long-term rates of compensation increases ranging from 4% to 5.5%. In 1992, the assumed rates of return on plan assets ranged from 7% to 10%, the measurement of the projected benefit obligation was based on assumed discount rates ranging from 7% to 10% and assumed long-term rates of compensation increases ranging from 5% to 8%. The Company has 401(k) retirement investment plans ("401(k) Plans"), which are open to all its U.S. employees with one or more years of service. The 401(k) Plans call for Company contributions on a sliding scale based on the level of the employee's contribution. Approximately 70% of eligible employees are enrolled in the 401(k) Plans. The Company's contributions are funded monthly by payment to the 401(k) Plan administrators. Company contributions totalled $492,000, $474,000 and $419,000 for the years ended January 2, 1994, January 3, 1993, and December 29, 1991, respectively. 43 12 The table presented below sets forth the funded status of the Company's defined benefit plans and the amounts recognized in the consolidated financial statements. All of the Company's significant domestic and foreign plans are reflected in the table for each year presented.
1/2/94 1/3/93 ---------------------------------------------------------------- ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS (IN THOUSANDS) BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ====================================================================================================================== Plan assets at fair value, primarily insurance contracts $35,537 $ 5,401 $33,092 $ 364 - ---------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits 31,920 5,085 25,307 969 Nonvested benefits 1,137 828 1,009 0 - ---------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation 33,057 5,913 26,316 969 Effect of projected future salary increases 105 3,082 3,861 2,294 - ---------------------------------------------------------------------------------------------------------------------- Projected benefit obligation 33,162 8,995 30,177 3,263 - ---------------------------------------------------------------------------------------------------------------------- Plan assets in excess of (lesser than) projected benefit obligation 2,375 (3,594) 2,915 (2,899) Unrecognized net gain from past experience different from that assumed (2,880) 314 (3,403) (253) Unrecognized prior service cost 437 172 699 0 Unrecognized net asset existing at the date of initial application of SFAS 87 (344) 1,887 (471) 2,181 - ---------------------------------------------------------------------------------------------------------------------- Prepaid (Accrued) pension cost ($412) ($1,221) ($260) ($971) ====================================================================================================================== Net pension cost included the following components: Service cost - benefits earned during the period $ 716 $ 739 $ 1,322 $ 146 Interest cost on projected benefit obligation 2,540 613 2,764 120 Actual return on plan assets (8,196) (389) (4,524) 0 Net amortization and deferral 5,316 145 1,927 (12) - ---------------------------------------------------------------------------------------------------------------------- Net pension cost (credit) $ 376 $ 1,108 $ 1,489 $ 254 ======================================================================================================================
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES The Company has $103,925,000 aggregate principal amount of Convertible Subordinated Debentures ("Debentures") maturing in 2013 which were sold in a public offering. The Debentures are unsecured obligations of the Company and bear interest payable semi-annually at 8%. They are convertible into shares of the Company's Class A Common Stock at a conversion price of approximately $16.92 per share. The Debentures are redeemable, at the option of the Company, at a price of 103.2% during 1994, and are redeemable at decreasing prices thereafter. Sinking fund payments starting in 1999 are required to retire 70% of the debentures prior to maturity. Since issuance, no Debentures were converted or redeemed. NOTE 11 - REDEEMABLE PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of $1.00 par value Preferred Stock. In conjunction with the Bentley acquisition, the Company issued 250,000 shares of Series A Cumulative Convertible Preferred Stock. The Series A Preferred Stock is entitled to a 7% annual cumulative cash dividend that is payable quarterly. Series A Preferred Stock are non-voting, except as required by law or in limited circumstances to protect their preferential rights. The Series A Preferred Stock are convertible into shares of the Company's Class A Common Stock at the rate of one share of Class A Common Stock for each $14.7875 face value thereof plus the amount of any accrued but unpaid dividends. At January 2, 1994, the Series A Convertible Preferred Stock was convertible into 1,690,617 shares of Class A Common Stock. 44 13 The Company, at its sole option, may redeem any of the then outstanding Series A Preferred Stock by paying in cash, for each share redeemed, the face value thereof, plus all accrued but unpaid dividends. No such redemption is permitted before June 1, 1995. Between June 1, 1995 and May 31, 1996 such redemption is allowable if the market price of Class A Common Stock exceeds approximately $17.75. No limitations exist as to redemption subsequent to May 31, 1996. Preferred shareholders have the right to require the Company to redeem, after May 31, 2003, the then outstanding shares of Series A Preferred Stock at face value plus all accrued but unpaid dividends. The Company is not required to establish any sinking or retirement fund with respect to the shares of Series A Preferred Stock. During the year ended January 2, 1994, the Company paid cash dividends of $3.65 per Series A Preferred Share. NOTE 12 - COMMON STOCK AND STOCK OPTIONS The Company is authorized to issue 40,000,000 shares of $.10 par value Common Stock (Class A and B shares). Class A and B Common Stock have identical voting rights except for the election or removal of directors. Holders of Class B Common Stock are entitled as a class to elect a majority of the Board of Directors. The Company's Class A Common Stock is traded in the over-the-counter market under the symbol IFSIA and is quoted on the NASDAQ National Market System. The Company's Class B Common Stock and Series A Cumulative Convertible Preferred Stock are not publicly traded. Class B Common Stock is convertible into Class A Common Stock on a one-for-one basis. Both classes of Common Stock share in dividends available to common shareholders and the Series A Preferred Stock carries a 7% dividend rate (see Note 7 for discussion of restrictions on the payment of dividends). Cash dividends on Common Stock were $.24 per share for each of the years ended January 2, 1994, January 3, 1993 and December 29, 1991. Changes in common shareholders' equity were:
COMMON STOCK FOREIGN ------------------------------------ ADDITIONAL CURRENCY CLASS A CLASS B PAID-IN RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ============================================================================================================================ BALANCE 12/30/90 17,305 $ 1,730 3,522 $ 352 $81,735 $104,281 $28,057 Net income - - - - - 8,921 - Conversion of common stock 56 6 (56) (6) - - - Issuance of common stock 5 1 - - 34 - - Cash dividends paid - - - - - (4,136) - Foreign currency translation adjustment - - - - - - (4,252) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE 12/29/91 17,366 1,737 3,466 346 81,769 109,066 23,805 Net income - - - - - 12,250 - Conversion of common stock 172 17 (172) (17) - - - Issuance of common stock 33 3 - - 341 - Cash dividends paid - - - - - (4,142) - Foreign currency translation adjustment - - - - - - (21,080) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE 1/3/93 17,571 1,757 3,294 329 82,110 117,174 2,725 Net income - - - - - 13,849 - Conversion of common stock 173 17 (173) (17) - - - Issuance of common stock 185 19 - - 1,879 - - Cash dividends paid - - - - - (5,063) - Foreign currency translation adjustment - - - - - - (15,148) - ---------------------------------------------------------------------------------------------------------------------------- BALANCE 1/2/94 17,929 $ 1,793 3,121 $ 312 $83,989 $125,960 ($12,423) ============================================================================================================================
45 14 The Company has Key Employee Stock Option Plans ("the 1983 Plan" and "the 1993 Plan") and an Off-Shore Stock Option Plan ("Off-Shore Plan"), under which a committee of the Board of Directors is authorized to grant key employees, including officers, options to purchase the Company's Common Stock. Options granted pursuant to the 1993 Plan are exercisable for shares of Class A or B Common Stock at a price not less than 100% of the fair market value on the date of grant. The options are generally exercisable 20% per year for five years from the date of the grant and the options generally expire ten years from the date of the grant. An aggregate of 550,000 shares of Common Stock (Class A or Class B) have been reserved for issuance under the 1993 Plan. No options are currently available to be granted under the 1983 Plan. An aggregate of 830,674 shares of Class A Common Stock have been reserved for issuance under the 1983 Plan. Options are granted pursuant to the Off-Shore Plan to key non-U.S. employees and the directors of the Company's foreign subsidiaries. These options may be exercised for shares of Class A or B Common Stock as determined by the Compensation Committee of the Board of Directors. An aggregate of 1,000,000 shares of Common Stock (Class A and B) has been reserved for issuance under this Plan. As of January 2, 1994, the following stock options were outstanding under these Plans:
NUMBER OF YEAR OF GRANT SHARES OPTION PRICE - -------------------------------------------------------- 1984 46,666 $ 7.50 1985 30,000 $ 6.50 1987 100,000 $10.50 1988 359,674 $ 7.375 - $16.25 1990 20,000 $18.62 1991 207,000 $ 11.88 - $13.00 1992 271,000 $ 11.50 - $13.75 1993 317,143 $ 11.00 - $14.75 - -------------------------------------------------------- 1,351,483 ========================================================
During 1993, 73,334, 80,000, and 20,000 options were exercised at option prices of $7.50, $13.75 and $12.25, respectively. Additionally, approximately 222,000 options were forfeited or cancelled. At January 2, 1994 and January 3, 1993, approximately 674,000 and 504,000 options were exercisable at amounts ranging from $6.50 to $18.62. NOTE 13 - COMMITMENTS AND CONTINGENCIES The Company leases certain marketing locations, distribution facilities and equipment. At January 2, 1994, aggregate minimum rent commitments under operating leases with initial or remaining terms of one year or more consisted of the following:
FISCAL YEAR (IN THOUSANDS) - -------------------------------------------------------- 1994 $ 5,679 1995 4,139 1996 2,450 1997 1,686 1998 610 Thereafter 1,037 - -------------------------------------------------------- TOTAL $15,601 ========================================================
Rental expense amounted to approximately $10,252,000, $10,280,000 and $9,314,000, for the fiscal years ended January 2, 1994, January 3, 1993, and December 29, 1991, respectively. Bentley Mills' City of Industry, California plant is located in the San Gabriel Valley, which has been generally designated as a Superfund site. Neither the Environmental Protection Agency nor the potentially responsible party ("PRP") group has asserted that Bentley is a PRP in connection with such Superfund site. 46 15 NOTE 14 - BUSINESS AND FOREIGN OPERATIONS The Company and its subsidiaries are engaged predominantly in the manufacture and sale of commercial interior finishings. Financial information by geographic area for the fiscal years ended January 2, 1994, January 3, 1993, and December 29, 1991, is as follows:
FISCAL YEAR ENDED ------------------------------ (IN THOUSANDS) 1/2/94 1/3/93 12/29/91 ======================================================== SALES TO UNAFFILIATED CUSTOMERS United States $336,470 $255,476 $248,368 Americas, excluding the United States 13,054 17,268 17,026 Europe 232,385 273,665 271,518 Far East and Australia 43,158 47,669 44,874 - -------------------------------------------------------- TOTAL $625,067 $594,078 $581,786 ======================================================== OPERATING INCOME United States $ 29,555 $ 21,347 $ 23,113 Americas, excluding the United States (322) 572 951 Europe 16,866 20,099 14,734 Far East and Australia 71 (1,579) (845) - -------------------------------------------------------- TOTAL $ 46,170 $ 40,439 $ 37,953 ======================================================== IDENTIFIABLE ASSETS United States $322,379 $240,799 $247,591 Americas, excluding the United States 9,262 13,141 14,550 Europe 274,928 242,020 269,811 Far East and Australia 35,750 38,160 37,486 - -------------------------------------------------------- TOTAL $642,319 $534,120 $569,438 ========================================================
NOTE 15 - QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED) The following table sets forth, for the fiscal periods indicated, selected consolidated financial data and information regarding the market price per share of the Company's Class A Common Stock. The prices represent the reported high and low closing sale prices.
(IN THOUSANDS, EXCEPT FIRST SECOND THIRD FOURTH PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER ======================================================== FISCAL YEAR ENDED JANUARY 2, 1994 Net Sales $135,041 $150,045 $167,586 $172,395 Gross Profit 41,236 47,443 54,556 54,511 Net Income 2,204 2,747 3,447 4,538 Primary Earnings per Common Share* 0.13 0.16 0.20 0.26 Share prices: High 14 1/4 13 12 15 1/2 Low 11 1/2 9 7/8 9 3/4 10 5/8 Dividends per Common Share 0.06 0.06 0.06 0.06 ======================================================== FISCAL YEAR ENDED JANUARY 3, 1993 Net Sales $154,490 $149,299 $143,716 $146,573 Gross Profit 50,202 48,876 46,005 44,865 Net Income 3,779 3,408 1,904 3,159 Primary Earnings per Common Share* 0.22 0.20 0.11 0.18 Share prices: High 14 1/8 16 1/2 15 13 7/8 Low 11 3/8 12 3/8 12 3/4 9 5/8 Dividends per Common Share 0.06 0.06 0.06 0.06 ========================================================
*For the fiscal years ended January 2, 1994 and January 3, 1993 earnings per share on a fully diluted basis were antidilutive. 47 16 Interface, Inc. and Subsidiaries Management's Responsibility for Financial Statements The management of Interface, Inc. is responsible for the accuracy and consistency of all the information contained in the annual report, including the accompanying consolidated financial statements. These statements have been prepared to conform with generally accepted accounting principles appropriate to the circumstances of the Company. The statements include amounts based on estimates and judgments as required. Interface, Inc. maintains internal accounting controls designed to provide reasonable assurance that the financial records are accurate, that the assets of the Company are safeguarded, and that the financial statements present fairly the consolidated financial position, results of operations and cash flows of the Company. The Audit Committee of the Board of Directors reviews the scope of the audits and the findings of the independent certified public accountants. The auditors meet regularly with the Audit Committee to discuss audit and financial reporting issues, with and without management present. BDO Seidman, the Company's independent certified public accountants, has audited the financial statements prepared by management. Their opinion on the statements is presented below. /s/ Ray C. Anderson - ------------------- Ray C. Anderson Chairman of the Board, President and Chief Executive Officer /s/ Daniel T. Hendrix - --------------------- Daniel T. Hendrix Vice President, Chief Financial Officer and Treasurer LaGrange, Georgia February 16, 1994 Interface, Inc. and Subsidiaries Report of Independent Certified Public Accountants Board of Directors and Shareholders of Interface, Inc. LaGrange, Georgia We have audited the accompanying consolidated balance sheets of Interface, Inc. and subsidiaries as of January 2, 1994 and January 3, 1993, and the related consolidated statements of income, and cash flows for each of the three years in the period ended January 2, 1994. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Interface, Inc. and its subsidiaries as of January 2, 1994 and January 3, 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1994, in conformity with generally accepted accounting principles. Atlanta, Georgia February 16, 1994 BDO SEIDMAN 48 17 Interface, Inc. and Subsidiaries Selected Financial Information
(IN THOUSANDS, EXCEPT SHARE DATA) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 ==================================================================================================================================== ANNUAL OPERATING DATA Net sales $ 625,067 $ 594,078 $ 581,786 $ 623,467 $ 581,756 $ 396,651 $ 267,008 $ 137,410 $ 123,430 $ 107,274 Cost of sales 427,321 404,130 393,733 410,652 382,455 263,508 176,813 87,783 79,561 70,032 Selling, general and administrative expenses 151,576 149,509 150,100 153,317 135,468 87,445 56,884 36,186 32,610 28,154 Other expense (income) 24,866 21,878 23,623 21,818 23,202 11,587 7,589 (2,122) 3,002 87 Income before taxes on income 21,304 18,561 14,330 37,680 40,631 34,111 25,722 16,823 12,697 9,001 Taxes on income 7,455 6,311 5,409 14,078 16,084 13,926 11,742 6,315 4,679 4,100 Net income 13,849 12,250 8,921 23,602 24,547 20,185 13,700 8,576 8,018 4,901 Earnings per common share: Primary .75 .71 .52 1.37 1.43 1.18 .87 .68 .59 .35 Fully diluted * * * 1.24 1.27 1.15 N/A N/A N/A N/A Dividends Cash dividends paid 5,063(B) 4,142 4,136 4,133 3,600 2,649 2,081 1,404 1,035 1,127 Cash dividends per common share .24 .24 .24 .24 .21 .16 .13 .11 .09 .08 Property additions (A) 28,829 14,476 15,375 23,705 25,333 49,261 14,152 40,941 9,092 7,542 Depreciation and amortization 24,512 22,257 19,723 21,570 17,243 11,621 8,270 3,187 2,547 1,972 WEIGHTED AVERAGE SHARES OUTSTANDING Primary 17,302 17,253 17,230 17,214 17,146 17,109 15,740 12,561 13,531 14,082 Fully diluted 24,352 23,398 23,375 23,359 23,291 18,726 N/A N/A N/A N/A AT YEAR-END Working capital $ 140,575 $ 138,834 $ 150,541 $ 156,638 $ 131,953 $ 127,328 $ 55,586 $ 44,720 $ 34,600 $ 22,370 Current ratio 2.1 2.5 2.3 2.4 2.2 2.3 2.2 2.3 2.5 2.3 Net property and equipment $ 145,125 $ 137,605 $ 139,406 $ 141,125 $ 126,917 $ 119,006 $ 72,818 $ 63,490 $ 25,400 $ 17,876 Total assets 642,319 534,120 569,438 582,371 525,814 493,371 233,165 197,263 92,680 62,432 Total long-term debt 291,637 235,488 240,137 254,578 244,158 249,136 62,949 96,468 14,986 9,870 Redeemable preferred stock 25,000 - - - - - - - - - Common shareholders' equity 181,884 186,349 198,977 198,409 157,001 135,985 115,990 51,731 43,770 34,033 Book value per common share 10.42 10.79 11.55 11.52 9.14 7.94 6.80 4.21 3.48 2.42 ==================================================================================================================================== * For fiscal years 1993, 1992 and 1991, earnings per share on a fully diluted basis are antidilutive. (A) Includes property and equipment obtained in acquisitions of businesses (B) Includes $913,000 preferred stock dividends in 1993.
FORM 10-K A copy of the Company's Annual Report on Form 10-K, filed each year with the Securities and Exchange Commission, may be obtained by shareholders without charge by writing to: Mr. Daniel T. Hendrix Vice President-Finance Interface, Inc. P.O. Box 1503 LaGrange, Georgia 30241. ANNUAL MEETING The annual meeting of shareholders will be at 10:00 a.m., May 17, 1994, at the corporate offices of the Company, Orchard Hill Road, LaGrange, Georgia. TRANSFER AGENT DIVIDEND DISBURSING AGENT Wachovia Bank and Trust Company, N.A. Corporate Trust Department P.O. Box 3001 Winston-Salem, NC 27102 NUMBER OF SHAREHOLDERS OF RECORD AT MARCH 23, 1994 Class A - 671 Class B - 58 CHANGE OF ADDRESS Please direct all changes of address or inquiries as to how your account is listed to: Registrar Wachovia Bank and Trust Company, N.A. Corporate Trust Department P.O. Box 3001 Winston-Salem, NC 27102 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BDO Seidman Atlanta, Georgia LEGAL COUNSEL Kilpatrick & Cody Atlanta, Georgia CORPORATE ADDRESS Interface, Inc. P.O. Box 1503 Orchard Hill Road LaGrange, Georgia 30241 Tel: (706) 882-1891 49 18 Appendix to Exhibit 13 Regarding Bar graph on page 35 of 1993 Annual Report to Shareholders. Presented are three bar charts reflecting, in each case for the five years in the period 1989 to 1993, (i) earnings and cash dividends, (ii) total assets and (iii) total capitalization, broken down by long-term debt, convertible debt, redeemable preferred stock and common shareholder's equity. EX-23 4 INTERFACE CONSENT 1 EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Interface, Inc. LaGrange, Georgia We hereby consent to the incorporation by reference in the Prospectuses constituting a part of the Company's Registration Statements on Form S-8 (File Numbers 33-28305 and 33-28307) and on Form S-3 (File Number 33-74076) of our reports dated February 16, 1994, relating to the consolidated financial statements and schedules of Interface, Inc. appearing in the Company's Form 10-K, for the year ended January 2, 1994. We also consent to the reference to us under the caption "Experts" in the Prospectuses. /s/ BDO Seidman --------------- BDO SEIDMAN Atlanta, Georgia April 1, 1994 -----END PRIVACY-ENHANCED MESSAGE-----