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Table of Contents

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarterly Period Ended July 5, 2020
Commission File Number 001-33994
INTERFACE INC
(Exact name of registrant as specified in its charter)
Georgia
 
58-1451243
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1280 West Peachtree Street, Atlanta, Georgia 30309
(Address of principal executive offices and zip code)
(770) 437-6800
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.10 Par Value Per Share
TILE
Nasdaq Global Select Market

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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No þ
Shares outstanding of each of the registrant’s classes of common stock at August 6, 2020:
Class
Number of Shares
Common Stock, $0.10 par value per share
58,547,753


Table of Contents

INTERFACE, INC.
INDEX
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
 
JULY 5, 2020
 
DECEMBER 29, 2019
 
(UNAUDITED)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
91,844

 
$
81,301

Accounts receivable, net
139,410

 
177,482

Inventories, net
263,721

 
253,584

Prepaid expenses and other current assets
38,411

 
35,768

Total current assets
533,386

 
548,135

Property and equipment, net
338,177

 
324,585

Operating lease right-of-use assets
100,091

 
107,044

Deferred tax asset
23,350

 
19,683

Goodwill and intangibles, net
226,828

 
346,474

Other assets
79,136

 
77,128

 
 
 
 
Total assets
$
1,300,968

 
$
1,423,049

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
64,894

 
$
75,687

Accrued expenses
122,505

 
140,652

Current portion of operating lease liabilities
14,124

 
15,914

Current portion of long-term debt
31,061

 
31,022

Total current liabilities
232,584

 
263,275

Long-term debt
589,130

 
565,178

Operating lease liabilities
86,716

 
91,829

Deferred income taxes
32,341

 
35,550

Other long-term liabilities
102,001

 
99,015

 
 
 
 
Total liabilities
1,042,772

 
1,054,847

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Shareholders’ equity
 
 
 
Preferred stock

 

Common stock
5,854

 
5,842

Additional paid-in capital
246,323

 
250,306

Retained earnings
184,206

 
286,056

Accumulated other comprehensive loss – foreign currency translation
(112,224
)
 
(113,139
)
Accumulated other comprehensive loss – cash flow hedge
(10,654
)
 
(4,163
)
Accumulated other comprehensive loss – pension liability
(55,309
)
 
(56,700
)
 
 
 
 
Total shareholders’ equity
258,196

 
368,202

 
 
 
 
Total liabilities and shareholders’ equity
$
1,300,968

 
$
1,423,049

See accompanying notes to consolidated condensed financial statements.

-3-

Table of Contents

INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JULY 5, 2020
 
JUNE 30, 2019
 
JULY 5, 2020
 
JUNE 30, 2019
NET SALES
$
259,504

 
$
357,507

 
$
547,673

 
$
655,195

Cost of Sales
162,210

 
216,777

 
336,068

 
397,943

GROSS PROFIT ON SALES
97,294

 
140,730

 
211,605

 
257,252

 
 
 
 
 
 
 
 
Selling, General and Administrative Expenses
80,058

 
97,838

 
167,741

 
197,973

Restructuring Charges
(157
)
 

 
(1,275
)
 

Goodwill and Intangible Asset Impairment Charge

 

 
121,258

 

OPERATING INCOME (LOSS)
17,393

 
42,892

 
(76,119
)
 
59,279

 
 
 
 
 
 
 
 
Interest Expense
4,965

 
6,810

 
10,595

 
13,603

Other Expense
5,139

 
304

 
6,630

 
1,318

 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
7,289

 
35,778

 
(93,344
)
 
44,358

Income Tax Expense
2,580

 
6,279

 
4,114

 
7,800

 
 
 
 
 
 
 
 
NET INCOME (LOSS)
$
4,709

 
$
29,499

 
$
(97,458
)
 
$
36,558

 
 
 
 
 
 
 
 
Earnings (Loss) Per Share – Basic
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61

 
 
 
 
 
 
 
 
Earnings (Loss) Per Share – Diluted
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61

 
 
 
 
 
 
 
 
Common Shares Outstanding – Basic
58,484

 
59,285

 
58,466

 
59,459

Common Shares Outstanding – Diluted
58,484

 
59,291

 
58,466

 
59,465

See accompanying notes to consolidated condensed financial statements.

-4-

Table of Contents

INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JULY 5, 2020
 
JUNE 30, 2019
 
JULY 5, 2020
 
JUNE 30, 2019
Net Income (Loss)
$
4,709

 
$
29,499

 
$
(97,458
)
 
$
36,558

Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment
16,160

 
4,249

 
915

 
(954
)
Other Comprehensive Loss, Cash Flow Hedge
(351
)
 
(4,667
)
 
(6,491
)
 
(7,973
)
Other Comprehensive Income (Loss), Pension Liability Adjustment
(342
)
 
829

 
1,391

 
738

Comprehensive Income (Loss)
$
20,176

 
$
29,910

 
$
(101,643
)
 
$
28,369

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
 
SIX MONTHS ENDED
 
JULY 5, 2020
 
JUNE 30, 2019
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(97,458
)
 
$
36,558

Adjustments to reconcile net income (loss) to cash provided by operating activities:
 
 
 
Depreciation and amortization
21,748

 
22,698

Stock compensation amortization expense (benefit)
(2,216
)
 
4,832

Deferred income taxes and other
(17,364
)
 
(11,577
)
Amortization of acquired intangible assets
2,631

 
3,252

Goodwill and intangible asset impairment
121,258

 

Working capital changes:
 
 
 
Accounts receivable
37,660

 
(4,637
)
Inventories
(8,792
)
 
(13,349
)
Prepaid expenses and current assets
1,005

 
(6,206
)
Accounts payable and accrued expenses
(26,045
)
 
(11,139
)
 
 
 
 
CASH PROVIDED BY OPERATING ACTIVITIES
32,427

 
20,432

 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(35,665
)
 
(34,926
)
Other
(29
)
 
33

 
 
 
 
CASH USED IN INVESTING ACTIVITIES
(35,694
)
 
(34,893
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Repayments of long-term debt
(47,779
)
 
(16,670
)
Borrowing of long-term debt
70,000

 
70,000

Tax withholding payments for share-based compensation
(1,488
)
 
(3,264
)
Proceeds from issuance of common stock
93

 
60

Dividends paid
(4,392
)
 
(7,763
)
Repurchase of common stock

 
(25,154
)
Finance lease payments
(810
)
 

 
 
 
 
CASH PROVIDED BY FINANCING ACTIVITIES:
15,624

 
17,209

 
 
 
 
Net cash provided by operating, investing and financing activities
12,357

 
2,748

Effect of exchange rate changes on cash
(1,814
)
 
519

 
 
 
 
CASH AND CASH EQUIVALENTS:
 
 
 
Net change during the period
10,543

 
3,267

Balance at beginning of period
81,301

 
80,989

 
 
 
 
Balance at end of period
$
91,844

 
$
84,256

See accompanying notes to consolidated condensed financial statements.

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INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as filed with the Commission.
The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The December 29, 2019, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.
The six month period ended July 5, 2020 includes 27 weeks, and the six month period ended June 30, 2019 includes 26 weeks. The three month periods ended July 5, 2020 and June 30, 2019 both include 13 weeks.
Risks and Uncertainties
The World Health Organization declared the COVID-19 outbreak a pandemic, and many companies have experienced disruptions in their operations. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that, except for the goodwill and intangible asset impairment discussed in Note 10Goodwill and Intangible Assets,” the decline in 2020 revenue, and its consequent impacts on production volume, operating income, net income, cash flows, and order rates, there were no other material adverse impacts on the Company’s results of operations and financial position at July 5, 2020. The Company’s primary credit facility has various financial and other covenants including, but not limited to, a covenant to not exceed a maximum net debt to EBITDA ratio, as defined by the credit facility agreement. On July 15, 2020, the Company amended its Syndicated Credit Facility. See Note 16 entitled “Subsequent Events” for additional information. The full extent of the future impact of COVID-19 on the Company’s operations is uncertain. A prolonged COVID-19 pandemic may continue to have a material adverse impact on our operations, financial condition, and supply chains. It may negatively impact our ability to collect outstanding receivables, manage inventory, and service customers. The impact of COVID-19 could result in additional impairment losses related to goodwill, intangible assets, and property, plant and equipment.
As the virus spreads through communities, it could impact the physical health, mental health, and productivity of our workforce as many of them are required to shelter in place and work from home for prolonged periods of time, and it could also impact our ability to reach our customers and collaborate with them as they are required to shelter in place and work from home for prolonged periods of time. The COVID-19 pandemic is having broad and negative implications on the global economy, which affects the size and timing of our customers’ capital budgets, and could result in delays or terminations of new and existing renovation projects, remodeling projects, new construction projects, and other projects where our products are used.
COVID-19 Impact
We continue to monitor our operations and have implemented various programs to mitigate the effects of COVID-19 on our business including reductions in employee headcount, labor costs, marketing expenses, consulting spend, travel costs, various other costs, and capital expenditures, as well as suspending and reducing shifts in our production facilities, temporarily furloughing employees, and implementing other cost reduction or avoidance initiatives. Government grants and payroll protection programs are available globally to provide assistance to companies impacted by the pandemic. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted in the United States (see Note 13 entitled “Income Taxes” for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”), provide benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments. The NOW Program provides eligible companies with reimbursement of labor costs as an incentive to retain employees on the payroll. During the second quarter the Company recognized benefits under several payroll protection programs as reductions to payroll costs.

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Reclassifications
In fiscal year 2020, the Company made certain classification and presentation changes related to customer service and other costs. Previously, these costs were presented as a component of cost of sales. Beginning in fiscal year 2020, these costs are presented as a component of selling, general and administrative (“SG&A”) expense. The Company determined that this change better reflects how management views and operates the business. Reclassifications of the comparative prior year 2019 amounts have been made to conform to the current presentation as follows:
 
 
Three Months Ended June 30, 2019
Statement of Operations Line Item
 
As Reported
 
Reclassification
 
As Reclassified
 
 
(In thousands)
Cost of Sales
 
$
218,917

 
$
(2,140
)
 
$
216,777

Selling, General and Administrative Expenses
 
95,698

 
2,140

 
97,838

Total
 
$
314,615

 
$

 
$
314,615

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
Statement of Operations Line Item
 
As Reported
 
Reclassification
 
As Reclassified
 
 
(In thousands)
Cost of Sales
 
$
401,207

 
$
(3,264
)
 
$
397,943

Selling, General and Administrative Expenses
 
194,709

 
3,264

 
197,973

Total
 
$
595,916

 
$

 
$
595,916

Recently Adopted Accounting Pronouncements
On December 30, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Credit Losses. This standard requires a financial asset (including trade receivables) to be presented at the net amount expected to be collected through the use of valuation allowances for credit losses. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The Company adopted the new standard using a modified retrospective approach with no cumulative-effect adjustment to retained earnings to recognize expected credit losses on trade accounts receivable. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements.
On December 30, 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and Other,” that provides for the elimination of Step 2 from the goodwill impairment test. Under the new guidance, impairment charges are recognized to the extent the carrying amount of a reporting unit exceeds its fair value with certain limitations. See Note 10 entitled “Goodwill and Intangible Assets” for additional information.
On December 30, 2019, the Company adopted ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement.” This standard eliminates the current requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard includes additional disclosure requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in other comprehensive income during the period and permits the disclosure of other relevant quantitative information for certain unobservable inputs. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements.
On December 30, 2019, the Company adopted ASU 2018-15, “Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement.” This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement service contract with the guidance to capitalize implementation costs of internal use software. The ASU also requires that the costs for implementation activities during the application development phase be capitalized in a hosting arrangement service contract, and costs during the preliminary and post implementation phase are expensed. The Company adopted this standard, which will be applied on a prospective basis, with no material impact to the Company’s consolidated financial statements.

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Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740 related to intraperiod tax allocation, the calculation of income taxes in interim periods, and the accounting for outside basis differences of foreign subsidiaries and equity method investments. The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740, including franchise or similar taxes partially based on income, the accounting for a step-up in tax basis goodwill, and interim recognition of an enacted change in tax laws or rates, by clarifying and amending existing guidance. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact of adoption of this standard but does not anticipate that the adoption will have a material effect on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met. This new guidance is effective and may be applied beginning March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption of this standard.

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NOTE 2REVENUE RECOGNITION
Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98% of total revenue for the six months ended July 5, 2020. The remaining 2% of revenue was generated from the installation of carpet and other flooring-related material.
Disaggregation of Revenue
For the six months ended July 5, 2020, revenue from the Company’s customers is broken down by geography as follows:
Geography
 
Percentage of Net Sales
Americas
 
56.5%
Europe
 
30.4%
Asia-Pacific
 
13.1%



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Table of Contents

NOTE 3INVENTORIES
Inventories are summarized as follows:
 
July 5, 2020
 
December 29, 2019
 
(In thousands)
Finished Goods
$
178,506

 
$
184,336

Work in Process
16,720

 
13,152

Raw Materials
68,495

 
56,096

Inventories, net
$
263,721

 
$
253,584




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NOTE 4EARNINGS PER SHARE
The Company computes basic earnings or loss per share (“EPS”) by dividing net income or loss by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings.
The Company includes all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in the basic and diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following tables show distributed and undistributed earnings:
 
Three Months Ended
 
Six Months Ended
Earnings (Loss) Per Share
July 5, 2020
 
June 30, 2019
 
July 5, 2020
 
June 30, 2019
Basic Earnings (Loss) Per Share:
 
 
 
 
 
 
 
Distributed Earnings
$
0.01

 
$
0.07

 
$
0.08

 
$
0.13

Undistributed Earnings (Loss)
0.07

 
0.43

 
(1.75
)
 
0.48

Total
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61

 
 
 
 
 
 
 
 
Diluted Earnings (Loss) Per Share:
 
 
 
 
 
 
 
Distributed Earnings
$
0.01

 
$
0.07

 
$
0.08

 
$
0.13

Undistributed Earnings (Loss)
0.07

 
0.43

 
(1.75
)
 
0.48

Total
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61

 
 
 
 
 
 
 
 
Basic Earnings (Loss) Per Share
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61

Diluted Earnings (Loss) Per Share
$
0.08

 
$
0.50

 
$
(1.67
)
 
$
0.61


The following table presents net income that was attributable to participating securities:
 
Three Months Ended
 
Six Months Ended
 
July 5, 2020
 
June 30, 2019
 
July 5, 2020
 
June 30, 2019
 
(In millions)
Net Income Attributable to Participating Securities
$

 
$
0.3

 
$

 
$
0.3

The weighted average shares for basic and diluted EPS were as follows:
 
Three Months Ended
 
Six Months Ended
 
July 5, 2020
 
June 30, 2019
 
July 5, 2020
 
June 30, 2019
 
(In thousands)
Weighted Average Shares Outstanding
58,024

 
58,760

 
58,006

 
58,934

Participating Securities
460

 
525

 
460

 
525

Shares for Basic EPS
58,484

 
59,285

 
58,466

 
59,459

Dilutive Effect of Stock Options

 
6

 

 
6

Shares for Diluted EPS
58,484

 
59,291

 
58,466

 
59,465


For the three and six months ended July 5, 2020, there were 20,000 stock options in each respective period excluded from the computation of diluted EPS because the impact would be anti-dilutive. For the three and six months ended June 30, 2019, there were no stock options or participating securities excluded from the computation of diluted EPS.

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Table of Contents

NOTE 5LONG-TERM DEBT
Syndicated Credit Facility
At July 5, 2020, the Company maintained an amended and restated Syndicated Credit Facility (the “Facility”) which provided to the Company and certain of its subsidiaries a multicurrency revolving loan and U.S. denominated and multicurrency term loans. Interest on base rate loans was charged at varying rates computed by applying a margin depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on LIBOR-based loans and fees for letters of credit were charged at varying rates computed by applying a margin over the applicable LIBOR rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company paid a commitment fee per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.
Debt issuance costs associated with term loans are reflected as a reduction of long-term debt in accordance with applicable accounting standards. As these fees are expensed over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are expensed. As of July 5, 2020 and December 29, 2019, the unamortized debt costs recorded as a reduction of long-term debt were $5.4 million and $6.3 million, respectively.
Other deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of revolving debt, net of accumulated amortization, were $1.1 million and $1.3 million as of July 5, 2020 and December 29, 2019, respectively. These amounts are included in other assets in the Company’s consolidated condensed balance sheets. The Company amortizes these costs over the life of the related debt.
As of July 5, 2020, the Company had outstanding $566.8 million of term loan borrowing and $58.8 million of revolving loan borrowings under the Facility, and had $1.6 million in letters of credit outstanding under the Facility. As of December 29, 2019, the Company had outstanding $581.6 million of term loan borrowing and $20.9 million of revolving loan borrowings under the Facility, and had $2.2 million in letters of credit outstanding under the Facility. As of July 5, 2020 and December 29, 2019, the weighted average interest rate on borrowings outstanding under the Facility was 2.75% and 3.27%, respectively. As of July 5, 2020 and December 29, 2019, the carrying value of the Company’s borrowings under the Facility approximates its fair value as the Facility bears interest rates that are similar to existing market rates.
Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter.
The Company is currently in compliance with all covenants under the Facility. On July 15, 2020, the Company amended its Syndicated Credit Facility. See Note 16 entitled “Subsequent Events” for additional information.
Other Lines of Credit
Subsidiaries of the Company have an aggregate of the equivalent of $9.5 million of other lines of credit available at interest rates ranging from 2.0% to 6.0% as of both July 5, 2020 and December 29, 2019. As of July 5, 2020 and December 29, 2019, there were no borrowings outstanding under these lines of credit.

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Table of Contents

NOTE 6DERIVATIVE INSTRUMENTS
Interest Rate Risk Management
In the third quarter of 2017 and the first quarter of 2019, the Company entered into interest rate swap transactions in notional amounts of $100 million and $150 million, respectively, to fix the variable interest rate on a portion of its term loan borrowing in order to manage a portion of its exposure to interest rate fluctuations. The Company’s objective and strategy with respect to these interest rate swaps is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability to cash flows relating to interest payments on a portion of its outstanding debt. The Company is meeting its objective by hedging the risk of changes in its cash flows (interest payments) attributable to changes in LIBOR, the designated benchmark interest rate being hedged (the “hedged risk”), on an amount of the Company’s debt principal equal to the outstanding swap notional amounts.
Cash Flow Interest Rate Swaps
Both of the interest rate swaps described above are designated and qualify as cash flow hedges of forecasted interest payments. The Company reports the changes in fair value of the swaps as a component of other comprehensive income (or other comprehensive loss). The aggregate notional amount of the interest rate swaps as of July 5, 2020 was $250 million.
Forward Contracts
Our European operations, from time to time, are party to currency forward contracts designed to hedge the cash flow risk of intercompany sales from the manufacturing facility in Europe to the Americas. The Company’s objective and strategy with respect to these currency forward contracts is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to receipt of payment on intercompany sales. As of July 5, 2020, there were no active forward currency contracts.
Derivative Transactions Not Designated as Hedging Instruments
Our Asia-Pacific operations, from time to time, purchase foreign currency options to economically hedge inventory purchases denominated in foreign currencies other than their functional currency. The Company’s objective with respect to these foreign currency options is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to payment on inventory purchases. These options are classified as non-designated derivative instruments. Gains and losses on the changes in fair value of these foreign currency options are recognized in earnings each period. As of July 5, 2020, the Company had outstanding foreign currency options with an aggregate notional amount of $17.0 million.
The table below sets forth the fair value of derivative instruments as of July 5, 2020:
 
Asset Derivatives as of
July 5, 2020
 
Liability Derivatives as of
July 5, 2020
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
(In thousands)
Derivative instruments designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swap contracts
Other current assets
 
$

 
Accrued expenses
 
$
14,893

Derivative instruments not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency options
Other current assets
 
320

 
Accrued expenses
 

 
 
 
$
320

 
 
 
$
14,893


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Table of Contents

The table below sets forth the fair value of derivative instruments as of December 29, 2019:
 
Asset Derivatives as of
December 29, 2019
 
Liability Derivatives as of
December 29, 2019
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
 
(In thousands)
Derivative instruments designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate swap contracts
Other current assets
 
$

 
Accrued expenses
 
$
5,801

Derivative instruments not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency options
Other current assets
 
251

 
Accrued expenses
 

 
 
 
$
251

 
 
 
$
5,801


There was no significant impact to net income (loss) from the changes in fair value of derivatives designated as cash flow hedges during the three and six months ended July 5, 2020. We expect that approximately $5.2 million related to cash flow hedges will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.
The following table summarizes the impact that changes in the fair value of derivatives designated as cash flow hedges had on accumulated other comprehensive loss, net of tax, during the three and six months ended July 5, 2020 and June 30, 2019:
 
Three Months Ended
 
Six Months Ended
 
July 5, 2020
 
June 30, 2019
 
July 5, 2020
 
June 30, 2019
 
(In thousands)
Foreign currency contracts gain (loss)
$

 
$
204

 
$

 
$
(159
)
Interest rate swap contracts loss
(351
)
 
(4,871
)
 
(6,491
)
 
(7,814
)
Loss recognized in accumulated other comprehensive loss
$
(351
)
 
$
(4,667
)
 
$
(6,491
)
 
$
(7,973
)

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive income (loss) into net income (loss) are discussed in Note 14 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”
The following tables summarize gains and losses on derivatives not designated as hedging instruments within the consolidated condensed statements of operations for the three and six months ended July 5, 2020 and June 30, 2019:
 
 
 
Three Months Ended
 
Statement of Operations Location
 
July 5, 2020
 
June 30, 2019
 
 
 
(In thousands)
Foreign currency options loss
Other expense
 
$
(1,629
)
 
$
(144
)
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Statement of Operations Location
 
July 5, 2020
 
June 30, 2019
 
 
 
(In thousands)
Foreign currency options gain (loss)
Other expense
 
$
79

 
$
(549
)





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Table of Contents

NOTE 7SHAREHOLDERS’ EQUITY
The following tables depict the activity in the accounts which make up shareholders’ equity for the three and six months ended July 5, 2020 and June 30, 2019:
 
SHARES
 
COMMON STOCK
 
ADDITIONAL PAID-IN CAPITAL
 
RETAINED
EARNINGS
 
PENSION LIABILITY
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
 
CASH FLOW
HEDGE
 
(In thousands)
Balance, at December 29, 2019
58,416

 
$
5,842

 
$
250,306

 
$
286,056

 
$
(56,700
)
 
$
(113,139
)
 
$
(4,163
)
Net loss

 

 

 
(102,167
)
 

 

 

Stock issuances under employee plans
220

 
22

 
197

 

 

 

 

Other issuances of common stock
107

 
10

 
1,720

 

 

 

 

Unamortized stock compensation expense related to restricted stock awards

 

 
(1,731
)
 

 

 

 

Cash dividends declared, $0.065 per common share

 

 

 
(3,807
)
 

 

 

Forfeitures and compensation expense related to stock awards
(255
)
 
(25
)
 
(4,114
)
 

 

 

 

Pension liability adjustment

 

 

 

 
1,733

 

 

Foreign currency translation adjustment

 

 

 

 

 
(15,245
)
 

Cash flow hedge unrealized loss

 

 

 

 

 

 
(6,140
)
Balance, at April 5, 2020
58,488

 
$
5,849

 
$
246,378

 
$
180,082

 
$
(54,967
)
 
$
(128,384
)
 
$
(10,303
)
Net income

 

 

 
4,709

 

 

 

Stock issuances under employee plans
12

 
1

 
(1
)
 

 

 

 

Other issuances of common stock
70

 
7

 
2,294

 

 

 

 

Unamortized stock compensation expense related to restricted stock awards

 

 
(2,300
)
 

 

 

 

Cash dividends declared, $0.01 per common share

 

 

 
(585
)
 

 

 

Forfeitures and compensation expense related to stock awards
(26
)
 
(3
)
 
(48
)
 

 

 

 

Pension liability adjustment

 

 

 

 
(342
)
 

 

Foreign currency translation adjustment

 

 

 

 

 
16,160

 

Cash flow hedge unrealized loss

 

 

 

 

 

 
(351
)
Balance, at July 5, 2020
58,544

 
$
5,854

 
$
246,323

 
$
184,206

 
$
(55,309
)
 
$
(112,224
)
 
$
(10,654
)

-16-

Table of Contents

 
SHARES
 
COMMON STOCK
 
ADDITIONAL PAID-IN CAPITAL
 
RETAINED
EARNINGS
 
PENSION LIABILITY
 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
 
CASH FLOW
HEDGE
 
(In thousands)
Balance, at December 30, 2018
59,508

 
$
5,951

 
$
270,269

 
$
222,214

 
$
(43,610
)
 
$
(101,487
)
 
$
1,326

Net income

 

 

 
7,059

 

 

 

Stock issuances under employee plans
509

 
51

 
379

 

 

 

 

Other issuances of common stock
224

 
22

 
3,900

 

 

 

 

Unamortized stock compensation expense related to restricted stock awards

 

 
(3,922
)
 

 

 

 

Cash dividends declared, $0.065 per common share

 

 

 
(3,900
)
 

 

 

Forfeitures and compensation expense related to stock awards
(225
)
 
(22
)
 
29

 

 

 

 

Pension liability adjustment

 

 

 

 
(91
)
 

 

Foreign currency translation adjustment

 

 

 

 

 
(5,203
)
 

Cash flow hedge unrealized loss

 

 

 

 

 

 
(3,306
)
Balance, at March 31, 2019
60,016

 
$
6,002

 
$
270,655

 
$
225,373

 
$
(43,701
)
 
$
(106,690
)
 
$
(1,980
)
Net income

 

 

 
29,499

 

 

 

Stock issuances under employee plans
2

 

 
6

 

 

 

 

Other issuances of common stock
(1
)
 

 

 

 

 

 

Unamortized stock compensation expense related to restricted stock awards

 

 
52

 

 

 

 

Cash dividends declared, $0.065 per common share

 

 

 
(3,863
)
 

 

 

Forfeitures and compensation expense related to stock awards
(28
)
 
(3
)
 
1,506

 

 

 

 

Share repurchases
(1,556
)
 
(156
)
 
(24,998
)
 

 

 

 

Pension liability adjustment

 

 

 

 
829

 

 

Foreign currency translation adjustment

 

 

 

 

 
4,249

 

Cash flow hedge unrealized loss

 

 

 

 

 

 
(4,667
)
Balance, at June 30, 2019
58,433

 
$
5,843

 
$
247,221

 
$
251,009

 
$
(42,872
)
 
$
(102,441
)
 
$
(6,647
)

Stock Option Awards
In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award.
All outstanding stock options vested prior to the end of 2013, and therefore there was no stock option compensation expense in the first six months of 2020 or 2019.
As of July 5, 2020, there were 20,000 stock options outstanding and exercisable, at an average exercise price of $12.43 per share. There were no stock options granted in the first six months of 2020 or 2019. There were 7,500 stock options exercised and no stock options forfeited in the first six months of 2020. There were 10,000 stock options exercised in the first six months of 2019 and 5,000 stock option forfeitures during those six months. The outstanding and exercisable stock options had no intrinsic value as of July 5, 2020.


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Table of Contents

Restricted Stock Awards
During the six months ended July 5, 2020 and June 30, 2019, the Company granted restricted stock awards for 308,100 and 224,000 shares of common stock, respectively. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a one to three-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, certain awards (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause.
Compensation expense (benefit) related to restricted stock grants was $(0.2) million and $1.5 million for the six months ended July 5, 2020, and June 30, 2019, respectively. The Company has reduced its expense for restricted stock forfeited during the period.
The following table summarizes restricted stock outstanding as of July 5, 2020, as well as activity during the six months then ended:
 
Restricted Shares
 
Weighted Average
Grant Date
Fair Value
Outstanding at December 29, 2019
468,200

 
$
28.63

Granted
308,100

 
13.08

Vested
(162,100
)
 
19.22

Forfeited or canceled
(153,700
)
 
19.67

Outstanding at July 5, 2020
460,500

 
$
24.53


As of July 5, 2020, the unrecognized total compensation cost related to unvested restricted stock was $4.7 million. That cost is expected to be recognized by the end of 2023.
Performance Share Awards
During the six months ended July 5, 2020 and June 30, 2019, the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years, subject to the employee’s continued employment, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that may be issued in settlement of the performance shares to the award recipients may be greater (up to 200%) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.
The following table summarizes the performance shares outstanding as of July 5, 2020, as well as the activity during the six months then ended:
 
Performance Shares
 
Weighted Average
Grant Date
Fair Value
Outstanding at December 29, 2019
512,000

 
$
19.71

Granted
263,700

 
15.36

Vested
(164,300
)
 
19.74

Forfeited or canceled
(192,000
)
 
19.67

Outstanding at July 5, 2020
419,400

 
$
16.99


Compensation expense (benefit) related to the performance shares was $(2.0) million and $3.3 million for the six months ended July 5, 2020 and June 30, 2019, respectively. The Company has reduced its expense for performance shares forfeited during the period. Unrecognized compensation expense related to these performance shares was approximately $7.0 million as of July 5, 2020. Depending on the performance of the Company, any compensation expense related to these outstanding performance shares will be recognized by the end of 2023.
Tax expense recognized with regard to restricted stock and performance shares was approximately $0.5 million for the six months ended July 5, 2020.

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Table of Contents

NOTE 8LEASES
General
We have operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. Our leases have terms ranging from 1 to 20 years, some of which may include options to extend the lease term for up to 5 years, and certain leases may include an option to terminate the lease. Our lease accounting may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option.
We record a right-of-use asset and lease liability for leases extending beyond one year for operating and finance leases once a contract that contains a lease is executed and we have the right to control the use of the leased asset. The right-of-use asset is measured as the present value of the lease obligation. The discount rate used to calculate the present value of the lease liability was the Company’s incremental borrowing rate for the applicable geographical region.
As of July 5, 2020, there were no significant right-of-use assets and lease obligations from leases that had not commenced as of the end of the second quarter.
The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to our leases as of July 5, 2020 and December 29, 2019:
 
July 5, 2020
 
December 29, 2019
Balance Sheet Location
Operating Leases
 
Finance Leases
 
Operating Leases
 
Finance Leases
 
(In thousands)
Operating lease right-of-use assets
$
100,091

 
 
 
$
107,044

 
 
 
 
 
 
 
 
 
 
Current portion of operating lease liabilities
$
14,124

 
 
 
$
15,914

 
 
Operating lease liabilities
86,716

 
 
 
91,829

 
 
Total operating lease liabilities
$
100,840

 
 
 
$
107,743

 
 
 
 
 
 
 
 
 
 
Property and equipment
 
 
$
4,954

 
 
 
$
5,007

 
 
 
 
 
 
 
 
Accrued expenses
 
 
$
1,455