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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 October 04, 2020
Commission File Number 001-33994
INTERFACE INC
(Exact name of registrant as specified in its charter)
Georgia58-1451243
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.10 Par Value Per ShareTILENasdaq 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 filerþAccelerated 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 November 5, 2020:
ClassNumber of Shares
Common Stock, $0.10 par value per share58,669,430


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)
OCTOBER 4, 2020DECEMBER 29, 2019
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents$103,719 $81,301 
Accounts receivable, net132,592 177,482 
Inventories, net247,494 253,584 
Prepaid expenses and other current assets31,241 35,768 
Total current assets515,046 548,135 
Property and equipment, net346,592 324,585 
Operating lease right-of-use assets99,815 107,044 
Deferred tax asset23,818 19,683 
Goodwill and intangibles, net240,118 346,474 
Other assets80,386 77,128 
 
Total assets$1,305,775 $1,423,049 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$63,781 $75,687 
Accrued expenses135,772 140,652 
Current portion of operating lease liabilities14,015 15,914 
Current portion of long-term debt31,239 31,022 
Total current liabilities244,807 263,275 
Long-term debt548,827 565,178 
Operating lease liabilities87,276 91,829 
Deferred income taxes33,378 35,550 
Other long-term liabilities104,467 99,015 
 
Total liabilities1,018,755 1,054,847 
 
Commitments and contingencies
 
Shareholders’ equity
Preferred stock  
Common stock5,867 5,842 
Additional paid-in capital247,012 250,306 
Retained earnings189,533 286,056 
Accumulated other comprehensive loss – foreign currency translation(88,822)(113,139)
Accumulated other comprehensive loss – cash flow hedge(9,790)(4,163)
Accumulated other comprehensive loss – pension liability(56,780)(56,700)
 
Total shareholders’ equity287,020 368,202 
 
Total liabilities and shareholders’ equity$1,305,775 $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 ENDEDNINE MONTHS ENDED
OCTOBER 4, 2020SEPTEMBER 29, 2019OCTOBER 4, 2020SEPTEMBER 29, 2019
NET SALES$278,642 $348,352 $826,315 $1,003,547 
Cost of Sales176,480 210,608 512,548 608,551 
GROSS PROFIT ON SALES102,162 137,744 313,767 394,996 
 
Selling, General and Administrative Expenses88,161 93,396 255,902 291,369 
Restructuring Charges(1,881)672 (3,156)672 
Goodwill and Intangible Asset Impairment Charge  121,258  
OPERATING INCOME (LOSS)15,882 43,676 (60,237)102,955 
 
Interest Expense5,426 6,577 16,021 20,180 
Other Expense2,921 1,015 9,551 2,333 
 
INCOME (LOSS) BEFORE INCOME TAX EXPENSE7,535 36,084 (85,809)80,442 
Income Tax Expense1,622 9,874 5,736 17,674 
 
NET INCOME (LOSS)$5,913 $26,210 $(91,545)$62,768 
 
Earnings (Loss) Per Share – Basic$0.10 $0.45 $(1.56)$1.06 
 
Earnings (Loss) Per Share – Diluted$0.10 $0.45 $(1.56)$1.06 
 
Common Shares Outstanding – Basic58,592 58,433 58,507 59,117 
Common Shares Outstanding – Diluted58,592 58,434 58,507 59,122 
See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDEDNINE MONTHS ENDED
OCTOBER 4, 2020SEPTEMBER 29, 2019OCTOBER 4, 2020SEPTEMBER 29, 2019
Net Income (Loss)$5,913 $26,210 $(91,545)$62,768 
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment23,402 (18,585)24,317 (19,539)
Other Comprehensive Income (Loss), Cash Flow Hedge864 (941)(5,627)(8,914)
Other Comprehensive Income (Loss), Pension Liability Adjustment(1,471)1,076 (80)1,814 
Comprehensive Income (Loss)$28,708 $7,760 $(72,935)$36,129 
See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
OCTOBER 4, 2020SEPTEMBER 29, 2019
OPERATING ACTIVITIES:
Net income (loss)$(91,545)$62,768 
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization33,480 33,578 
Stock compensation amortization expense (benefit)(1,416)6,494 
Deferred income taxes and other(20,438)(11,806)
Amortization of acquired intangible assets4,030 4,581 
Goodwill and intangible asset impairment121,258  
Working capital changes:
Accounts receivable47,572 (928)
Inventories13,203 (11,809)
Prepaid expenses and current assets8,819 (4,481)
Accounts payable and accrued expenses(17,695)11,507 
 
CASH PROVIDED BY OPERATING ACTIVITIES97,268 89,904 
 
INVESTING ACTIVITIES:
Capital expenditures(46,884)(53,881)
Other(183)85 
 
CASH USED IN INVESTING ACTIVITIES(47,067)(53,796)
 
FINANCING ACTIVITIES:
Repayments of long-term debt(114,022)(65,416)
Borrowing of long-term debt93,000 76,000 
Tax withholding payments for share-based compensation(1,505)(3,278)
Proceeds from issuance of common stock93 60 
Debt issuance costs(1,519) 
Dividends paid(4,978)(11,561)
Repurchase of common stock (25,154)
Finance lease payments(1,252)(808)
 
CASH USED IN FINANCING ACTIVITIES(30,183)(30,157)
 
Net cash provided by operating, investing and financing activities20,018 5,951 
Effect of exchange rate changes on cash2,400 (1,728)
 
CASH AND CASH EQUIVALENTS:
Net change during the period22,418 4,223 
Balance at beginning of period81,301 80,989 
 
Balance at end of period$103,719 $85,212 
See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY 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. All such adjustments are of a normal recurring nature unless otherwise disclosed. 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 (“GAAP”).
The nine month period ended October 4, 2020 includes 40 weeks, and the nine month period ended September 29, 2019 includes 39 weeks. The three month periods ended October 4, 2020 and September 29, 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 10 “Goodwill 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 October 4, 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 5 entitled “Long-Term Debt” 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 fiscal year 2020 year to date, 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 September 29, 2019
Statement of Operations Line ItemAs ReportedReclassificationAs Reclassified
(In thousands)
Cost of Sales$212,590 $(1,982)$210,608 
Selling, General and Administrative Expenses91,414 1,982 93,396 
Total$304,004 $ $304,004 
Nine Months Ended September 29, 2019
Statement of Operations Line ItemAs ReportedReclassificationAs Reclassified
(In thousands)
Cost of Sales$613,797 $(5,246)$608,551 
Selling, General and Administrative Expenses286,123 5,246 291,369 
Total$899,920 $ $899,920 
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 2 – REVENUE RECOGNITION
Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98% of total revenue for both nine month periods ended October 4, 2020 and September 29, 2019. The remaining 2% of revenue was generated from the installation of carpet and other flooring-related material for both the 2020 and 2019 nine month periods.
Disaggregation of Revenue
For the nine months ended October 4, 2020 and September 29, 2019, revenue from the Company’s customers is broken down by geography as follows:
Nine Months Ended
GeographyOctober 4, 2020September 29, 2019
Americas54.7%56.2%
Europe31.4%29.4%
Asia-Pacific13.9%14.4%

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NOTE 3 – INVENTORIES
Inventories are summarized as follows:
October 4, 2020December 29, 2019
(In thousands)
Finished Goods$170,576 $184,336 
Work in Process17,657 13,152 
Raw Materials59,261 56,096 
Inventories, net$247,494 $253,584 

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NOTE 4 – EARNINGS 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 EndedNine Months Ended
Earnings (Loss) Per ShareOctober 4, 2020September 29, 2019October 4, 2020September 29, 2019
Basic Earnings (Loss) Per Share:
Distributed Earnings $0.01 $0.07 $0.09 $0.19 
Undistributed Earnings (Loss)0.09 0.38 (1.65)0.87 
Total$0.10 $0.45 $(1.56)$1.06 
 
Diluted Earnings (Loss) Per Share:
Distributed Earnings $0.01 $0.07 $0.09 $0.19 
Undistributed Earnings (Loss)0.09 0.38 (1.65)0.87 
Total$0.10 $0.45 $(1.56)$1.06 
 
Basic Earnings (Loss) Per Share$0.10 $0.45 $(1.56)$1.06 
Diluted Earnings (Loss) Per Share$0.10 $0.45 $(1.56)$1.06 
The following table presents net income that was attributable to participating securities:
Three Months EndedNine Months Ended
October 4, 2020September 29, 2019October 4, 2020September 29, 2019
(In millions)
Net Income Attributable to Participating Securities$ $0.2 $ $0.6 
The weighted average shares for basic and diluted EPS were as follows:
Three Months EndedNine Months Ended
October 4, 2020September 29, 2019October 4, 2020September 29, 2019
(In thousands)
Weighted Average Shares Outstanding58,140 57,915 58,055 58,599 
Participating Securities452 518 452 518 
Shares for Basic EPS58,592 58,433 58,507 59,117 
Dilutive Effect of Stock Options 1  5 
Shares for Diluted EPS58,592 58,434 58,507 59,122 
For all periods presented, there were no stock options or participating securities excluded from the computation of diluted EPS.
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NOTE 5 – LONG-TERM DEBT
Syndicated Credit Facility
On July 15, 2020, the Company entered into a second amendment to its Syndicated Credit Facility (the “Facility”). This amendment, among other changes, provides for the following: (1) amends the consolidated net leverage ratio covenant making it less restrictive for a period of seven consecutive fiscal quarters beginning with the third quarter of fiscal year 2020 through the first quarter of fiscal year 2022 (the “Relief Period”); (2) amends the pricing grid used to determine interest rate margins on outstanding loans as well as the commitment fee on the unused portion of the Facility to include additional consolidated net leverage ratio levels with increased pricing at higher levels of leverage; (3) amends interest rate provisions to provide for an interest rate floor of either 0.00% or 0.75%, as applicable, on certain tranches of term loans outstanding; and (4) provides temporary restrictions during the Relief Period on the Company’s ability to make acquisitions, pay dividends, repurchase shares, or enter into new credit facilities without lender consent. The Company incurred approximately $1.5 million in debt issuance costs to execute this amendment.
The Facility provides the Company and certain of its subsidiaries a multicurrency revolving loan and U.S. denominated and multicurrency term loans. Interest on base rate loans is 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 is 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 pays 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.
As of October 4, 2020, the Company had outstanding $562.3 million of term loan borrowing and $23.7 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 October 4, 2020 and December 29, 2019, the weighted average interest rate on borrowings outstanding under the Facility was 3.15% and 3.27%, respectively. As of October 4, 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 and anticipates that it will remain in compliance with the covenants for the foreseeable future.
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 October 4, 2020 and December 29, 2019, the unamortized debt issuance costs recorded as a reduction of long-term debt were $5.9 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 $1.5 million and $1.3 million as of October 4, 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.
Other Lines of Credit
Subsidiaries of the Company had an aggregate of the equivalent of $9.6 million and $9.5 million of other lines of credit available as of October 4, 2020 and December 29, 2019, respectively, at interest rates ranging from 2.0% to 6.0% as of both October 4, 2020 and December 29, 2019. As of October 4, 2020 and December 29, 2019, there were no borrowings outstanding under these lines of credit.
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NOTE 6 – DERIVATIVE 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 October 4, 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 October 4, 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 October 4, 2020, the Company had outstanding foreign currency options with an aggregate notional amount of $16.9 million.
The table below sets forth the fair value of derivative instruments as of October 4, 2020:
Asset Derivatives as of October 4, 2020Liability Derivatives as of October 4, 2020
Balance Sheet
Location
Fair ValueBalance Sheet
Location
Fair Value
(In thousands)
Derivative instruments designated as hedging instruments:
Interest rate swap contractsOther current assets$ Accrued expenses$13,685 
Derivative instruments not designated as hedging instruments:
Foreign currency optionsOther current assets232 Accrued expenses 
$232 $13,685 
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The table below sets forth the fair value of derivative instruments as of December 29, 2019:
Asset Derivatives as of December 29, 2019Liability Derivatives as of December 29, 2019
Balance Sheet
Location
Fair ValueBalance Sheet
Location
Fair Value
(In thousands)
Derivative instruments designated as hedging instruments:
Interest rate swap contractsOther current assets$ Accrued expenses$5,801 
Derivative instruments not designated as hedging instruments:
Foreign currency optionsOther current assets251 Accrued expenses 
$251 $5,801 
We expect that approximately $5.2 million related to cash flow hedges will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.
The following table summarizes the impact that changes in the fair value of derivatives designated as cash flow hedges had on accumulated other comprehensive loss, net of tax, during the three and nine months ended October 4, 2020 and September 29, 2019:
Three Months EndedNine Months Ended
October 4, 2020September 29, 2019October 4, 2020September 29, 2019
(In thousands)
Foreign currency contracts gain$ $627 $ $468 
Interest rate swap contracts gain (loss)864 (1,568)(5,627)(9,382)
Gain (loss) recognized in accumulated other comprehensive loss$864 $(941)$(5,627)$(8,914)
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 nine months ended October 4, 2020 and September 29, 2019:
Three Months Ended
Statement of Operations LocationOctober 4, 2020September 29, 2019
(In thousands)
Foreign currency options gain (loss)Other expense$11 $325 
Nine Months Ended
Statement of Operations LocationOctober 4, 2020September 29, 2019
(In thousands)
Foreign currency options gain (loss)Other expense$90 $(224)

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NOTE 7 – SHAREHOLDERS’ EQUITY
The following tables depict the activity in the accounts which make up shareholders’ equity for the three and nine months ended October 4, 2020 and September 29, 2019:
SHARESCOMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED
EARNINGS
PENSION LIABILITYFOREIGN CURRENCY TRANSLATION ADJUSTMENTCASH FLOW
HEDGE
(In thousands)
Balance, at December 29, 201958,416 $5,842 $250,306 $286,056 $(56,700)$(113,139)$(4,163)
Net loss— — — (102,167)— — — 
Stock issuances under employee plans220 22 197 — — — — 
Other issuances of common stock107 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, 202058,488 $5,849 $246,378 $180,082 $(54,967)$(128,384)$(10,303)
Net income— — — 4,709 — — — 
Stock issuances under employee plans12 1 (1)— — — — 
Other issuances of common stock70 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, 202058,544 $5,854 $246,323 $184,206 $(55,309)$(112,224)$(10,654)
Net income— — — 5,913 — — — 
Stock issuances under employee plans7 1 (1)— — — — 
Other issuances of common stock127 13 (15)— — — — 
Unamortized stock compensation expense related to restricted stock awards— — 2 — — — — 
Cash dividends declared, $0.01 per common share
— — — (586)— — — 
Forfeitures and compensation expense related to stock awards(8)(1)703 — — — — 
Pension liability adjustment— — — — (1,471)— — 
Foreign currency translation adjustment— — — — — 23,402 — 
Cash flow hedge unrealized loss— — — — — — 864 
Balance, at October 4, 202058,670 $5,867 $247,012 $189,533 $(56,780)$(88,822)$(9,790)
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SHARESCOMMON STOCKADDITIONAL PAID-IN CAPITALRETAINED
EARNINGS
PENSION LIABILITYFOREIGN CURRENCY TRANSLATION ADJUSTMENTCASH FLOW
HEDGE
(In thousands)
Balance, at December 30, 201859,508 $5,951 $270,269 $222,214 $(43,610)$(101,487)$1,326 
Net income— — — 7,059 — — — 
Stock issuances under employee plans509 51 379 — — — — 
Other issuances of common stock224 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, 201960,016 $6,002 $270,655 $225,373 $(43,701)$(106,690)$(1,980)
Net income— — — 29,499 — — — 
Stock issuances under employee plans2  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, 201958,433 $5,843 $247,221 $251,009 $(42,872)$(102,441)$(6,647)
Net income— — — 26,210 — — — 
Cash dividends declared, $0.065 per common share
— — — (3,798)— — — 
Forfeitures and compensation expense related to stock awards— — 1,303 — — — — 
Pension liability adjustment— — — — 1,076 — — 
Foreign currency translation adjustment— — — — — (18,585)— 
Cash flow hedge unrealized loss— — — — — — (941)
Balance, at September 29, 201958,433 $5,843 $248,524 $273,421 $(41,796)$(121,026)$(7,588)
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.
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All outstanding stock options vested prior to the end of 2013, and therefore there was no stock option compensation expense in the first nine months of 2020 or 2019.
As of October 4, 2020, there were no stock options outstanding and exercisable. There were no stock options granted in the first nine months of 2020 or 2019. There were 7,500 stock options exercised and 20,000 stock options expired in the first nine months of 2020. There were 10,000 stock options exercised in the first nine months of 2019 and 5,000 stock option forfeitures during those nine months.
Restricted Stock Awards
During the nine months ended October 4, 2020 and September 29, 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 related to restricted stock grants was $0.6 million and $2.5 million for the nine months ended October 4, 2020, and September 29, 2019, respectively. The Company has reduced its expense for restricted stock forfeited during the period.
The following table summarizes restricted stock outstanding as of October 4, 2020, as well as activity during the nine months then ended:
Restricted SharesWeighted Average
Grant Date
Fair Value
Outstanding at December 29, 2019468,200 $28.63 
Granted308,100 13.08 
Vested(167,000)19.33 
Forfeited or canceled(157,800)19.59 
Outstanding at October 4, 2020451,500 $24.62 
As of October 4, 2020, the unrecognized total compensation cost related to unvested restricted stock was $3.8 million. That cost is expected to be recognized by the end of 2023.
Performance Share Awards
During the nine months ended October 4, 2020 and September 29, 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 October 4, 2020, as well as the activity during the nine months then ended:
Performance SharesWeighted Average
Grant Date
Fair Value
Outstanding at December 29, 2019512,000 $19.71 
Granted263,700 15.36 
Vested(164,300)19.74 
Forfeited or canceled(200,700)19.61 
Outstanding at October 4, 2020410,700 $16.96 
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Compensation expense (benefit) related to the performance shares was $(2.0) million and $4.0 million for the nine months ended October 4, 2020 and September 29, 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 $6.9 million as of October 4, 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 $0.3 million for the nine months ended October 4, 2020.
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NOTE 8 – LEASES
General
The Company has operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. The Company’s 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.
The Company records 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 October 4, 2020, there were no significant leases that had not commenced as of the end of the third quarter.
The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to our leases as of October 4, 2020 and December 29, 2019:
October 4, 2020December 29, 2019
Balance Sheet LocationOperating LeasesFinance LeasesOperating LeasesFinance Leases
(In thousands)
Operating lease right-of-use assets$99,815 $107,044 
 
Current portion of operating lease liabilities$14,015 $15,914 
Operating lease liabilities87,276