What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-03 compared with 2020-02-26 · 735 added, 455 removed, 864 unchanged (58% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

2020 2019 2018

Net sales $ 1,103,262 $ 1,343,029 $ 1,179,573

Cost of sales 692,688 810,062 749,690

2 unchanged sentences

Restructuring, asset impairment and other charges ( 4,626 ) 12,947 20,529

Operating income

Goodwill and intangible asset impairment charge 121,258 — —

Operating income (loss) ( 39,287 ) 130,903 76,379

Interest expense 29,244 25,656 15,436

Other expense 10,889 3,431 5,952

Income before income tax expense

Income tax expense

Net income per share – basic

Net income per share – diluted

Income (loss) before income tax expense ( 79,420 ) 101,816 54,991

Income tax expense (benefit) ( 7,491 ) 22,616 4,738

Net income (loss) $ ( 71,929 ) $ 79,200 $ 50,253

Net income (loss) per share – basic $ ( 1.23 ) $ 1.34 $ 0.84

Net income (loss) per share – diluted $ ( 1.23 ) $ 1.34 $ 0.84

Basic weighted average common shares outstanding 58,547 58,943 59,544

3 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

2020 2019 2018

Net income (loss) $ ( 71,929 ) $ 79,200 $ 50,253

Other comprehensive income (loss), after tax

Foreign currency translation adjustment 52,808 ( 11,652 ) ( 22,544 )

Cash flow hedge (losses) gains

Cash flow hedge gain (loss) ( 2,027 ) ( 5,489 ) 422

Pension liability adjustment ( 12,588 ) ( 13,090 ) 12,944

Comprehensive income

Comprehensive income (loss) $ ( 33,736 ) $ 48,969 $ 41,075

See accompanying notes to consolidated financial statements.

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

END OF FISCAL YEAR

(in thousands)

Current assets

8 unchanged sentences

Goodwill and intangibles, net 253,536 346,474

Other assets 81,857 77,128

Total assets $ 1,306,011 $ 1,423,049

LIABILITIES AND SHAREHOLDERS’ EQUITY

12 unchanged sentences

Shareholders’ equity

Preferred stock

Preferred stock, par value $ 1.00 per share;

5,000 shares authorized;

none issued or outstanding at January 3, 2021 and December 29, 2019

Common stock, par value $ 0.10 per share;

120,000 shares authorized;

58,664 and 58,416 shares issued and outstanding at January 3, 2021 and December 29, 2019, respectively

Additional paid-in capital 247,920 250,306

1 unchanged sentence

Accumulated other comprehensive loss – foreign currency translation ( 60,331 ) ( 113,139 )

Accumulated other comprehensive income – cash flow hedge

Accumulated other comprehensive loss – cash flow hedge ( 6,190 ) ( 4,163 )

Accumulated other comprehensive loss – pension liability ( 69,288 ) ( 56,700 )

5 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES:

(in thousands)

Adjustments to reconcile income to cash provided by operating activities

2020 2019 2018

OPERATING ACTIVITIES:

Net income (loss) $ ( 71,929 ) $ 79,200 $ 50,253

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation and amortization 45,920 44,932 39,084

Stock compensation amortization expense

Loss on disposal of impaired assets

Stock compensation amortization expense (benefit) ( 502 ) 8,691 14,496

Loss on disposal of fixed assets 4,996 — 8,569

Enactment of U.S.

Tax Cuts and Jobs Act expenses (benefit)

Tax Cuts and Jobs Act benefit — — ( 6,739 )

Bad debt expense 3,843 1,206 222

2 unchanged sentences

Amortization of acquired inventory step-up — — 26,666

Goodwill and intangible asset impairment 121,258 — —

Working capital changes:

Accounts receivable 40,090 ( 930 ) ( 10,113 )

Inventories 38,667 2,573 ( 18,784 )

Prepaid expenses and other current assets 12,967 ( 9,691 ) ( 15,501 )

4 unchanged sentences

Cash paid for business, net of cash acquired — — ( 400,697 )

Other 1,260 425 ( 131 )

Cash used in investing activities ( 61,689 ) ( 74,222 ) ( 455,685 )

4 unchanged sentences

Term loan repayments ( 304,425 ) ( 24,028 ) ( 14,162 )

Proceeds from issuance of Senior Notes due 2028 300,000 — —

Repurchase of common stock — ( 25,154 ) ( 14,485 )

2 unchanged sentences

Debt issuance costs ( 7,896 ) — ( 8,806 )

Payments for debt extinguishment costs ( 660 ) — —

Proceeds from issuance of common stock 93 60 294

Cash (used in) provided by financing activities

Finance lease payments ( 1,727 ) ( 1,255 ) —

Cash provided by (used in) financing activities ( 42,715 ) ( 66,677 ) 361,526

Net cash provided by (used in) operating, investing and financing activities 14,666 869 ( 2,392 )

5 unchanged sentences

See accompanying notes to consolidated financial statements.

INTERFACE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 unchanged sentences

The Company manufactures modular carpet focusing on the high quality, designer-oriented sector of the market, sources LVT from a third party and focuses on the same sector of the market, and provides specialized carpet replacement, installation and maintenance services.

Additionally, the Company offers Intersept , a proprietary antimicrobial used in a number of interior finishes.

The Company also offers resilient rubber flooring since its acquisition of nora Holding GmbH on August 7, 2018.

8 unchanged sentences

Actual results could vary from these estimates.

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 12 entitled “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 January 3, 2021.

The Company’s Syndicated 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 and November 17, 2020, the Company amended its Syndicated Credit Facility;

see Note 9 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 17 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, the Company recognized benefits under several payroll protection programs as reductions to payroll costs.

Revenue Recognition

Effective January 1, 2018, the Company adopted a new accounting standard with regard to revenue from customers.

The core principle of this standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue from contracts with customers is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, the guidance provides that an entity should apply the following steps:

4 unchanged sentences

and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

The Company elected the modified retrospective approach for adoption of this new standard, as is allowed by the standard.

The Company did not have any significant impact from this standard as of the date of the adoption.

Revenue Recognized from Contracts with Customers

12 unchanged sentences

The Company does not have any other significant revenue streams outside of these sales of flooring material, and the sale and installation of flooring material, as described above.

The Company does not record taxes collected from customers and remitted to governmental authorities on a gross basis.

The Company does not record taxes collected from customers and remitted to governmental authorities within revenues.

The Company records such taxes collected as a liability on our consolidated balance sheets.

Performance Obligations

6 unchanged sentences

For the Company’s installation business, the sales of carpet and other flooring materials and installation services are separate deliverables which under the revenue recognition requirements should be characterized as separate performance obligations.

Prior to the adoption of the new accounting standard, the Company historically had not separated these obligations and had accounted for these installation projects on a completed contract basis.

The nature of the installation projects is such that the vast majority – an amount in excess of 85 % of these installation projects – are completed in less than 5 days.

10 unchanged sentences

Research and Development

Research and development costs are expensed as incurred and are included in selling, general and administrative expenses and cost of sales in the consolidated statements of operations.

Research and development costs are expensed as incurred and are included in selling, general and administrative (“SG&A”) expenses and cost of sales in the consolidated statements of operations.

Research and development expense was $ 18.6 million, $ 17.8 million, and $ 16.4 million for the years 2020, 2019 and 2018, respectively.

3 unchanged sentences

Significant concentrations of credit risk may arise from the Company’s cash maintained at various banks, as from time to time cash balances may exceed the FDIC limits.

The Company did no t hold any significant amounts of cash equivalents and short-term investments at December 29, 2019 and December 30, 2018 .

The Company did no t hold any significant amounts of cash equivalents and short-term investments at January 3, 2021 and December 29, 2019.

Cash payments for interest amounted to approximately $ 32.0 million, $ 22.7 million, and $ 13.8 million for the years 2020, 2019, and 2018, respectively.

2019 includes cash payments for interest related to the Company’s finance lease liabilities.

2020 includes cash payments of $ 12.5 million to terminate the Company’s interest rate swap liabilities.

Income tax payments amounted to approximately $ 19.3 million, $ 34.8 million and $ 29.5 million for the years 2020, 2019 and 2018, respectively.

During the years 2020, 2019 and 2018, the Company received income tax refunds of $ 7.5 million, $ 1.9 million and $ 0.8 million, respectively.

Allowances for Expected Credit Losses

The Company maintains allowances for expected credit losses for estimated losses resulting from the inability of customers to make required payments.

Estimating the amount of future expected losses requires the Company to consider historical losses from our customers, as well as current market conditions and future forecasts of our customers’ ability to make payments for goods and services.

By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that the Company is unable to collect may be different than the amount initially estimated.

Inventories are carried at the lower of cost (standards approximating the first-in, first-out method) or net realizable value.

12 unchanged sentences

When the Company receives direct reimbursements for costs incurred in marketing the vendor’s product or service, the amount received is recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations.

We record a right-of-use asset and lease liability 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 Company records a right-of-use asset and lease liability for operating and finance leases once a contract that contains a lease is executed and the Company has 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, which is based on the estimated rate for a fully collateralized borrowing that fully amortizes over a similar lease term at the commencement date and for the applicable geographical region.

We made an accounting policy election to exclude leases with an initial term of 12 months or less from the calculation of the right-of-use asset and lease liability recorded on the consolidated condensed balance sheet.

These leases primarily represent month-to-month operating leases for vehicles and office equipment where we were reasonably certain that we would not elect an option to extend the lease.

We also made an accounting policy election not to separate lease and non-lease components for all asset classes and will account for the lease payments as a single component.

The discount rate used to calculate the present value of the lease liability is the Company’s incremental borrowing rate, which is based on the estimated rate for a fully collateralized borrowing that fully amortizes over a similar lease term at the commencement date and for the applicable geographical region.

The Company made an accounting policy election to exclude leases with an initial term of 12 months or less from the calculation of the right-of-use asset and lease liability recorded on the consolidated balance sheets.

These leases primarily represent month-to-month operating leases for office equipment where we were reasonably certain that we would not elect an option to extend the lease.

The Company also made an accounting policy election not to separate lease and non-lease components for all asset classes and will account for the lease payments as a single component.

Property and Equipment and Long-Lived Assets

6 unchanged sentences

Depreciation expense amounted to approximately $ 42.4 million, $ 41.5 million, and $ 37.6 million for the years 2020, 2019, and 2018 respectively.

Depreciation expense recorded to costs of sales in the consolidated statements of operations was $ 26.3 million , $ 21.8 million , and $ 14.8 million for the years 2019 , 2018 , and 2017 , respectively.

Depreciation expense recorded in SG&A expenses in the consolidated statements of operations was $ 15.2 million , $ 15.8 million , and $ 14.7 million , for the years 2019 , 2018 , and 2017 , respectively.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

1 unchanged sentence

Repair and maintenance costs are charged to operating expense as incurred.

Goodwill and Other Intangible Assets

In connection with the nora acquisition on August 7, 2018, the Company recognized goodwill of $ 201.9 million and acquired intangible assets of $ 103.3 million .

Goodwill includes all purchase price accounting adjustments of approximately $ 18.6 million related to additional liabilities that existed at the acquisition date.

Goodwill and intangible assets were assigned pro-rata to the Company’s three operating segments.

None of the goodwill is expected to be deductible for income tax purposes.

As of December 29, 2019 , and December 30, 2018 , the net carrying amount of goodwill was $ 257.4 million and $ 245.8 million , respectively.

Other intangible assets were $ 89.1 million and $ 97.7 million as of December 29, 2019 and December 30, 2018 , respectively.

Amortization expense related to intangible assets during the years 2019 , 2018 and 2017 was $ 5.9 million , $ 5.4 million and $ 0.7 million , respectively and are recorded in cost of sales in the consolidated statements of operations.

During the fourth quarters of 2019 , 2018 and 2017 , as of the last day of the third quarter of each year, the Company performed the annual goodwill impairment test.

The Company performs this test at the reporting unit level, which is one level below the segment level for the Flooring segment.

Goodwill and Intangible Assets

In accordance with applicable accounting standards, the Company tests goodwill for impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the fourth quarters of 2020, 2019 and 2018, the Company performed the annual goodwill impairment test.

In addition, during the first quarter of 2020—primarily due to anticipated impacts of the COVID-19 pandemic—the Company determined that there were indicators of impairment, and the Company proceeded with a goodwill impairment test as of the end of the first quarter.

The Company tests goodwill at the reporting unit level, which is one level below the reporting segment level.

In performing the impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed.

In preparing the valuations, past, present and future expectations of performance were considered.

The annual testing indicated no potential of goodwill impairment in any of the years presented.

Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the measurement date, and therefore no impairment was indicated as a result of the impairment testing.

As of December 29, 2019 , if the Company’s estimates of the fair values of its reporting units which carry a goodwill balance were 10 % lower, the Company still believes no goodwill impairment would have existed.

However, the Company has experienced significant competitive pressure in fiscal 2019 along with volatility in the company stock price.

As such, it is reasonably possible that such circumstances along with a recent acquisition may together warrant the need to write down the value of goodwill in the near term.

The changes in the carrying amounts of goodwill for the years ended December 29, 2019 and December 30, 2018 are as follows (in thousands):

(in thousands)

JANUARY 1, 2018

(in thousands)

On December 30, 2019, the Company adopted Accounting Standards Update 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.

The Company used a consistent methodology in performing both the annual goodwill impairment tests and the goodwill impairment test as of the end of the first quarter of 2020.

See Note 12 entitled “Goodwill and Intangible Assets” for additional information.

Product Warranties

4 unchanged sentences

The Company records a provision related to warranty costs based on historical experience and periodically adjusts these provisions to reflect changes in actual experience.

Warranty and sales allowance reserves amounted to $ 3.9 million and $ 3.5 million as of December 29, 2019 and December 30, 2018 , respectively, and are included in “Accrued Expenses” in the accompanying consolidated balance sheets.

Warranty and sales allowance reserves amounted to $ 3.2 million and $ 3.9 million as of January 3, 2021 and December 29, 2019, respectively, and are included in “Accrued Expenses” in the accompanying consolidated balance sheets.

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

10 unchanged sentences

Fair values of debt are based on quoted market prices or pricing models using current market rates and classified as level 2 within the fair value hierarchy.

See Note 5 entitled “Fair Value of Financial Instruments” for further information.

Translation of Foreign Currencies

9 unchanged sentences

Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, calculated using the treasury stock method.

See Note 15 entitled “Earnings Per Share” for additional information.

Stock-Based Compensation

5 unchanged sentences

Derivatives are recognized on the balance sheet at fair value.

For derivatives that meet the criteria as designated cash flow hedges, the effective portion of changes in the fair value of the derivative are recognized in other comprehensive income until the hedged item is recognized in earnings.

Derivative liabilities are recorded in accrued expenses and derivative assets are recorded in other current assets in the consolidated balance sheet.

For derivatives that meet the criteria as designated cash flow hedges, the changes in the fair value of the derivative are recognized in other comprehensive income (or other comprehensive loss) until the hedged item is recognized in earnings.

Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings each period.

Derivative liabilities are recorded in accrued expenses and derivative assets are recorded in other current assets in the consolidated balance sheets.

Cash flows from all derivative instruments, including those not designated as hedging instruments, are classified in the same category as the cash flows from the items being hedged.

Pension Benefits

4 unchanged sentences

Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers.

Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.

Estimating this amount requires the Company to analyze the financial strengths of its customers.

If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Change in Accounting Principle

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Improvements to Share Based Payment Accounting,” to simplify the accounting for share based payment transactions.

We previously adopted the provisions of this ASU in fiscal year 2017 and noted at that time that we would apply the policy election to estimate forfeitures of share based awards and reduce stock compensation expense based on that estimate.

On December 30, 2019, the Company elected to change its forfeiture method related to share based awards and will now account for forfeitures as they occur, as allowed by ASU 2016-09.

The Company believes that this change is preferable because it achieves better correlation of stock compensation expense with the requisite service period.

The cumulative impact of this change did not have a material effect on the Company’s consolidated financial statements.

As a result, the cumulative effect of $ 1.4 million was recognized in SG&A expenses within the consolidated statement of operations in 2020.

Since the impact of this change is not material, prior period amounts were not retrospectively adjusted.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year financial statement presentation.

These reclassifications had no effect on reported income, comprehensive income, cash flows, or shareholders’ equity as previously reported.

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 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 and 2018 amounts have been made to conform to the current presentation as follows:

Fiscal Year 2019

Statement of Operations Line Item As Reported Reclassification As Reclassified

(in thousands)

Cost of sales $ 817,575 $ ( 7,513 ) $ 810,062

Selling, general and administrative expenses 381,604 7,513 389,117

Total $ 1,199,179 $ — $ 1,199,179

Fiscal Year 2018

Statement of Operations Line Item As Reported Reclassification As Reclassified

(in thousands)

Cost of sales $ 755,216 $ ( 5,526 ) $ 749,690

Selling, general and administrative expenses 327,449 5,526 332,975

Total $ 1,082,665 $ — $ 1,082,665

The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest December 31.

All references herein to “ 2019 ,” “ 2018 ,” and “ 2017 ,” mean the fiscal years ended December 29, 2019 , December 30, 2018 , and December 31, 2017 , respectively.

Fiscal years 2019 , 2018 and 2017 were each comprised of 52 weeks.

All references herein to “2020,” “2019,” and “2018,” mean the fiscal years ended January 3, 2021, December 29, 2019, and December 30, 2018, respectively.

Fiscal year 2020 includes 53 weeks, and 2019 and 2018 were each comprised of 52 weeks.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On December 31, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases.” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The Company adopted the new lease standard using the modified retrospective approach and recorded operating lease right-of-use assets and operating lease liabilities for approximately $ 115.0 million respectively, with no cumulative-effect adjustment to retained earnings.

The Company elected to apply the practical expedients allowed by the standard, which resulted in the Company not having to reassess whether expired or existing contracts contained a lease as well as retaining the historical classification of our leases.

The Company also elected the hindsight practical expedient in evaluating lessee options and elected to combine lease and non-lease components in calculating the right-of-use asset and lease liability for all leases, except data center assets.

See Note 11 entitled “ Leases ” for additional information.

On December 31, 208 the Company adopted, Accounting Standards Update (“ASU”) 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which addresses a narrow-scope financial reporting issue that arose as a consequence of the U.S.

Tax Cuts and Jobs Act.

The former guidance required that deferred tax liabilities and assets be adjusted for a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date.

That guidance was applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in net income), such as amounts related to benefit plans and hedging activity.

As a result, the tax effects of items within accumulated other comprehensive income do not reflect the appropriate tax rate (the difference is referred to as stranded tax effects).

The new guidance allows for a reclassification of these amounts to retained earnings, thereby eliminating these stranded tax effects.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements as the Company did not elect to reclassify stranded tax effects into retained earnings.

On December 31, 2018, the Company adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” This standard requires that the accounting treatment for non-employee share-based payments for goods or services be consistent with current accounting for employee share-based payments, including measurement of awards at grant-date fair value and the application of probability to evaluate performance conditions.

This standard also eliminates the current GAAP requirement to reassess the classification of non-employee share-based payments awards upon vesting.

The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740 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 August 2018, the FASB issued 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.

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 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 12 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 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 new guidance is effective for interim and annual periods beginning after December 15, 2019.

The Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements.

In August 2018, the FASB issued 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 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 new guidance is effective for interim and annual periods beginning after December 15, 2019.

The Company adopted this standard, which will be applied on a prospective basis, with no material impact to the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the 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 December 2017, the FASB issued 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.

The new guidance is effective for any annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

The Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments -- Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This ASU 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.

This standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period.

The new standard provides both a modified retrospective or prospective adoption method.

The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements, due to the short-term nature of its trade accounts receivable.

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.

NOTE 3 – REVENUE RECOGNITION

Effective January 1, 2018, the Company adopted a new accounting standard regarding revenue recognition from contracts with customers.

The Company elected the modified retrospective approach for adoption of this new standard.

The Company did not have any significant impact from this standard as of the date of the adoption.

Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98 % of total revenue for 2019 .

The remaining 2 % of revenue was generated from the installation of carpet and other flooring-related material.

Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98 %, 98 % and 97 % of total revenue for 2020, 2019 and 2018, respectively.

The remaining 2 %, 2 % and 3 % of revenue was generated from the installation of carpet and other flooring-related material in 2020, 2019 and 2018, respectively.

Disaggregation of Revenue

For 2019 , revenue from the Company’s customers is broken down by geography as follows:

Percentage of Net Sales

For fiscal years 2020, 2019 and 2018, revenue from the Company’s customers is broken down by geography as follows:

Geography 2020 2019 2018

Americas 53.8 % 56.4 % 57.8 %

Europe 31.8 % 29.3 % 27.1 %

Asia-Pacific 14.4 % 14.3 % 15.1 %

NOTE 4 – RECEIVABLES

The Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential increases in its concentration of credit risk due to increasing trade receivables from sales to owners and users of commercial office facilities and with specifiers such as architects, engineers and contracting firms.

The Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential increases in its concentration of credit risk due to increasing trade receivables.

Management believes that credit risks are further moderated by the diversity of its end customers and geographic sales areas.

The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.

The Company maintains allowances for expected credit losses resulting from the inability of customers to make required payments.

If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

As of December 29, 2019 and December 30, 2018 , the allowance for bad debts amounted to $ 3.8 million and $ 3.5 million , respectively, for all accounts receivable of the Company.

Reserves for warranty and returns allowances amounted to $ 3.9 million and $ 3.5 million as of December 29, 2019 and December 30, 2018 , respectively.

As of January 3, 2021 and December 29, 2019, the allowance for expected credit losses amounted to $ 6.6 million and $ 3.8 million, respectively, for all accounts receivable of the Company.

Reserves for warranty and returns allowances amounted to $ 3.2 million and $ 3.9 million as of January 3, 2021 and December 29, 2019, respectively.

NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Measurements of Plan Assets

Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure estimated fair value.

1 unchanged sentence

The three levels of the fair value hierarchy under applicable accounting standards are described below:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Inputs to the valuation methodology include:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Inputs to the valuation methodology include:

• quoted prices for similar assets in active markets;

2 unchanged sentences

• inputs that are derived principally or corroborated by observable data by correlation or other.

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

As of December 29, 2019 and December 30, 2018 , the Company had approximately $ 23.3 million and $ 24.3 million , respectively, of Company-owned life insurance, which is measured on a readily determinable cash surrender value on a recurring basis.

As of January 3, 2021 and December 29, 2019, the Company had approximately $ 22.0 million and $ 23.3 million, respectively, of Company-owned life insurance, which is measured on a readily determinable cash surrender value on a recurring basis.

This Company-owned life insurance is classified as a Level 2 asset within the fair value hierarchy.

Due to the short maturity of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, their carrying values approximate fair value.

As of December 29, 2019 , the carrying value of the Company’s borrowings under its Syndicated Credit Facility approximates fair value as the Facility bears interest rates that are similar to existing market rates.

As of January 3, 2021, the carrying value of the Company’s borrowings under its Syndicated Credit Facility approximates fair value as the Facility bears interest rates that are similar to existing market rates.

As of January 3, 2021, the estimated fair value of the Company’s 5.50% Senior Notes due 2028 (“Senior Notes”) was $ 316.0 million, compared with a carrying value recorded in the Company’s consolidated balance sheets of $ 300.0 million, excluding unamortized debt issuance costs.

The fair value of the Company’s Senior Notes is derived using quoted prices for similar instruments and is considered Level 2 within the fair value hierarchy.

The fair value of the Company’s derivative instruments is determined using discounted cash flow valuation models.

The significant inputs used in these models are readily available in public markets, or can be derived from other observable market transactions, and therefore are classified as Level 2 within the fair value hierarchy.

See Note 19 entitled “Employee Benefit Plans” for additional information on defined benefit plan assets.

NOTE 6 – INVENTORIES

5 unchanged sentences

Raw materials 58,780 56,096

Inventory, Net

Reserves for inventory obsolescence amounted to $ 28.3 million and $ 28.1 million as of December 29, 2019 and December 30, 2018 , respectively, and have been netted against amounts presented above.

Inventories, net $ 228,725 $ 253,584

Reserves for inventory obsolescence amounted to $ 35.0 million and $ 28.3 million as of January 3, 2021 and December 29, 2019, respectively, and have been netted against amounts presented above.

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

2 unchanged sentences

(in thousands)

Land $ 18,348 $ 17,777

Buildings 176,702 148,833

Equipment (1)

657,796 615,149

852,846 781,759

Accumulated depreciation and amortization (2)

Property, plant and equipment

(1) 2019 includes $ 5.9 million of leased equipment.

(2) 2019 includes $ 0.9 million of accumulated amortization on leased equipment.

The estimated cost to complete construction-in-progress at December 29, 2019 , was approximately $ 57.2 million .

( 493,810 ) ( 457,174 )

Property, plant and equipment, net $ 359,036 $ 324,585

(1) Includes $ 9.9 million and $ 5.9 million of leased equipment for 2020 and 2019, respectively.

(2) Includes $ 3.8 million and $ 0.9 million of accumulated amortization on leased equipment for 2020 and 2019, respectively.

As of January 3, 2021, construction-in-progress was approximately $ 43.0 million.

NOTE 8 – ACCRUED EXPENSES

2 unchanged sentences

(in thousands)

Compensation $ 79,306 $ 86,696

Interest 2,507 1,485

Restructuring 1,064 11,445

Taxes 2,073 16,809

Accrued purchases 5,916 4,910

Warranty and sales allowances 3,248 3,853

Other 11,625 15,454

Accrued Expenses $ 105,739 $ 140,652

NOTE 9 – LONG-TERM DEBT

Long-term debt consisted of the following:

January 3, 2021 December 29, 2019

Outstanding Principal Interest Rate (1)

(in thousands) (in thousands)

Syndicated Credit Facility:

On August 7, 2018, the Company amended and restated its Syndicated Credit Facility (the “Facility”) in connection with the nora acquisition.

Revolving loan borrowings $ 3,000 4.00 % $ 20,861 3.52 %

Term loan borrowings 282,215 1.87 % 581,655 3.05 %

Total borrowings under Syndicated Credit Facility 285,215 1.89 % 602,516 3.06 %

5.50% Senior Notes due 2028 300,000 5.50 % — — %

Total debt 585,215 602,516

Unamortized debt issue costs ( 8,645 ) ( 6,316 )

Total debt, net 576,570 596,200

Current portion of long-term debt ( 15,319 ) ( 31,022 )

Total long-term debt, net $ 561,251 $ 565,178

(1) Represents the stated rate of interest, without the effect of debt issuance costs or interest rate swaps.

Syndicated Credit Facility

The Company’s Syndicated Credit Facility (the “Facility”) provides to the Company U.S.

denominated and multicurrency term loans and provides to the Company and certain of its subsidiaries a multicurrency revolving credit facility.

On August 7, 2018, the Company amended and restated its Facility in connection with the nora acquisition.

The purpose of the amended and restated Facility was to fund the nora purchase price and related fees and expenses of the acquisition, and to increase the credit available to the Company and its subsidiaries following the closing of the nora acquisition in view of the larger enterprise.

At December 29, 2019 , the amended and restated Facility provided to the Company and certain of its subsidiaries a multicurrency revolving loan facility up to $ 300.0 million , as well as other U.S.

denominated and multicurrency term loans.

On December 18, 2019, the Company amended its Facility, with certain of its wholly-owned foreign subsidiaries as co-borrowers.

In connection with the 2018 amended and restated Facility, the Company recorded $ 8.8 million of debt issuance costs.

On December 18, 2019, the Company amended the Facility.

The purpose of this amendment was to provide for certain provisions, including but not limited to the following:

the amendment of certain covenants in the Facility to add new exceptions which will allow the Company and its subsidiaries to accomplish certain intercompany investments and other intercompany transactions desired to be made by the Company and its subsidiaries, and

amendments to add provisions relating to treatment of certain qualified financial contracts, to modify certain existing provisions dealing with the replacement of LIBOR as a benchmark interest rate with an alternative benchmark rate in the event that LIBOR in the future ceases to be available as a bench mark rate.

• the amendment of certain covenants in the Facility to add new exceptions which allowed the Company and its subsidiaries to accomplish certain intercompany investments and other intercompany transactions desired to be made by the Company and its subsidiaries, and

• amendments to add provisions relating to treatment of certain qualified financial contracts, to modify certain existing provisions dealing with the replacement of LIBOR as a benchmark interest rate with an alternative benchmark rate in the event that LIBOR in the future ceases to be available as a benchmark rate.

On July 15, 2020, the Company entered into a second amendment to its Facility.

This amendment, among other changes, provided for the following:

(1) amended 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) amended 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) amended 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) provided 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.

Of this amount, approximately $ 1.0 million of debt issuance costs associated with term loan borrowings was recorded as a reduction of long-term debt, and approximately $ 0.5 million of debt issuance costs associated with revolving loan borrowings was recorded in other assets in the consolidated balance sheet.

These costs will be amortized over the life of the outstanding debt.

On November 17, 2020, the Company entered into a third amendment to its Facility.

The third amendment provided for, among other changes, the following amendments to the Facility:

• the amendment of the maturity date of the Facility to November 2025;

• the amendment of the 0.75 % interest rate floor in respect of certain loans under the Facility with an interest rate floor of 0.00 %;

• amendments to the financial covenants to replace the consolidated net leverage ratio covenant with a consolidated secured net leverage ratio covenant that is not to exceed 3.00 to 1.00;

• amendments to remove the Relief Period restrictions previously imposed pursuant to the second amendment;

• amendments to provide for the case where any interest rate benchmark in the future ceases to be available.

In connection with the third amendment, the Company recognized a loss on extinguishment of debt of $ 3.6 million within interest expense in the consolidated statement of operations and recorded approximately $ 0.9 million of debt issuance costs.

Of this amount, approximately $ 0.1 million of debt issuance costs associated with term loan borrowings was recorded as a reduction of long-term debt, and approximately $ 0.8 million of debt issuance costs associated with revolving loan borrowings was recorded in other assets in the consolidated balance sheet.

At January 3, 2021, the amended and restated Facility provided to the Company and certain of its subsidiaries a multicurrency revolving loan facility up to $ 300.0 million, as well as other U.S.

denominated and multicurrency term loans.

At January 3, 2021, the Company had available borrowing capacity of $ 295.4 million under the revolving loan facility.

Interest Rates and Fees

Interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25 % to 2.00 %, 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 are 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.

Interest on multi-currency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25 % to 2.25 % over the applicable Eurocurrency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.

Interest on Eurocurrency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25 % to 3.00 % over the applicable Eurocurrency 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 ranging from 0.20 % to 0.40 % 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.

10 unchanged sentences

The Facility also requires the Company to remain in compliance with the following financial covenants as of the end of each fiscal quarter, based on the Company’s consolidated results for the year then ended:

Consolidated Net Leverage Ratio:

• Consolidated Secured Net Leverage Ratio:

Must be no greater than 3.00 :1.00.

1.00 , subject to a step-down as described in the Facility Agreement.

• Consolidated Interest Coverage Ratio:

7 unchanged sentences

• exercise other rights and remedies available to them under the agreement and applicable law.

Pursuant to an Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of the Company’s domestic subsidiaries and up to 65 % of the stock of its first-tier material foreign subsidiaries.

Pursuant to a Second Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of the Company’s domestic subsidiaries and up to 65 % of the stock of its first-tier material foreign subsidiaries.

If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

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 December 29, 2019 , the weighted average interest rate on borrowings outstanding under the Facility was 3.27 % .

As of January 3, 2021 and December 29, 2019, the Company had $ 1.6 million and $ 2.2 million, respectively, in letters of credit outstanding under the Facility.

Under the amended and restated Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which commenced in the fourth quarter of 2018.

1 unchanged sentence

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.

Interest Rate Risk Management

In the third quarter of 2017 and the first quarter of 2019, the Company entered into interest rate swap transactions to fix the variable interest rate on a portion of its term loan borrowings 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.

5.50% Senior Notes due 2028

On November 17, 2020, the Company issued $ 300.0 million aggregate principal amount of 5.50% Senior Notes due December 2028 (the “Senior Notes”).

The Senior Notes bear an interest rate at 5.50 % per annum and mature on December 1, 2028.

Interest is paid semi-annually on June 1 and December 1 of each year, beginning on June 1, 2021.

The Company used the net proceeds to repay approximately $ 269.7 million of outstanding term loan borrowings and approximately $ 21.0 million of outstanding revolving loan borrowings under its existing Facility.

In connection with the issuance of the Senior Notes, the Company recorded approximately $ 5.7 million of debt issuance costs.

These costs were recorded as a reduction of long-term debt in the consolidated balance sheet and will be amortized over the life of the outstanding debt.

The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its existing Facility.

On or after December 1, 2023, the Company may redeem the Senior Notes, in whole or in part, at any time at the redemption prices listed below, plus accrued and unpaid interest, if any, to (but excluding) the redemption date, if redeemed during the 12-month period commencing on December 1 of the years set forth below:

Period Redemption Price

2023 102.750 %

2024 101.375 %

2025 and thereafter 100.000 %

In addition, the Company may redeem up to 35 % of the aggregate principal amount of the Senior Notes before December 1, 2023 with the proceeds of certain equity offerings at a redemption price of 105.50 %, plus accrued and unpaid interest, if any, to (but excluding) the redemption date.

The Company may also redeem all or a part of the Senior Notes before December 1, 2023 at a price equal to 100 % of the principal amount plus accrued and unpaid interest, if any, to (but excluding) the redemption date, plus a make-whole premium.

If the Company experiences a change of control, the Company will be required to offer to purchase the Senior Notes at 101 % of their principal amount, plus accrued and unpaid interest to (but excluding) the date of repurchase.

The indenture governing the Senior Notes contains standard and customary covenants for agreements of this type, including various reporting, affirmative and negative covenants.

Among other things, these covenants limit the Company’s and its subsidiaries’ ability to:

• incur additional indebtedness;

• declare or pay dividends, redeem stock or make other distributions to shareholders;

• make investments;

• create liens on their assets or use their assets as security in other transactions;

• enter into mergers, consolidations or sales, transfers, leases or other dispositions of all or substantially all of the Company’s assets;

• enter into certain transactions with affiliates;

• sell or transfer certain assets.

Events of Default

If the Company breaches or fails to perform any of the affirmative or negative covenants under the indenture governing the Senior Notes, or if other specified events occur (such as a bankruptcy or similar event), after giving effect to any applicable notice and right to cure provisions, an event of default will exist.

If an event of default exists and is continuing, the terms of the indenture permit the trustee or the holders of at least 25 % in principal amount of outstanding Senior Notes to declare the principal, premium, if any, and accrued but unpaid interest on all the Senior Notes to be due and payable.

Other Lines of Credit

Subsidiaries of the Company have an aggregate of the equivalent of $ 6.0 million of other lines of credit available at interest rates ranging from 3.5 % to 6.0 %.

As of December 29, 2019 and December 30, 2018 , there were no borrowings outstanding under these lines of credit.

As of January 3, 2021 and December 29, 2019, there were no borrowings outstanding under these lines of credit.

Borrowing Costs

In connection with the amended and restated Facility on August 7, 2018, as discussed above, the Company recorded $ 8.8 million of debt issuance costs associated with the new term loans, which are reflected as a reduction of long-term debt in accordance with applicable accounting standards.

These fees are amortized straight-line, which approximates the effective interest method, over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are amortized.

As of December 29, 2019 , the unamortized debt costs recorded as a reduction of long-term debt was $ 6.3 million .

Other deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of revolving debt, net of accumulated amortization, were $ 1.3 million and $ 1.8 million , as of December 29, 2019 and December 30, 2018 , respectively.

Debt issuance costs associated with the Company’s Senior Notes and term loans under the Facility are reflected as a reduction of long-term debt in accordance with applicable accounting standards.

These fees are amortized straight-line, which approximates the effective interest method, and over the life of the outstanding borrowing the debt balance will increase by the same amount as the fees that are amortized.

As of January 3, 2021 and December 29, 2019, the unamortized debt issuance costs recorded as a reduction of long-term debt were $ 8.6 million and $ 6.3 million, respectively.

Expenses related to such costs for the years 2020, 2019, and 2018 amounted to $ 1.7 million, $ 1.8 million, and $ 0.7 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 $ 2.0 million and $ 1.3 million, as of January 3, 2021 and December 29, 2019, respectively.

These amounts are included in other long term assets in the Company’s consolidated balance sheets.

The Company amortizes these costs over the life of the related debt.

Expenses related to such costs for the years 2019 , 2018 , and 2017 amounted to $ 0.4 million , $ 0.5 million , and $ 0.5 million , respectively for each of those years.

Expenses related to such costs for the years 2020, 2019, and 2018 amounted to $ 0.4 million, $ 0.4 million, and $ 0.5 million, respectively.

Future Maturities

The aggregate maturities of borrowings for each of the five fiscal years subsequent to 2020 are as follows:

Fiscal Year Amount

(in thousands)

2021 $ 15,319

Thereafter 300,000

Total Debt $ 585,215

Total long-term debt in the consolidated balance sheet includes a reduction for unamortized debt issuance costs of $ 8.6 million which are excluded from the maturities table above.

1 unchanged sentence

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 this interest rate swap 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.

Cash Flow Interest Rate Swap

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 swaps as of December 29, 2019 was $ 250 million .

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 under the Facility 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 was 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 met 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 were designated and qualified as cash flow hedges of forecasted interest payments.

The Company reports the changes in fair value of derivatives designated as hedging instruments as a component of other comprehensive income (or other comprehensive loss).

Both of the interest rate swaps were terminated in the fourth quarter of 2020, and hedge accounting was also discontinued.

This resulted in a loss of $ 3.9 million recorded in interest expense in the consolidated statement of operations as it is probable that a portion of the original forecasted transactions related to the portion of the hedged debt that was repaid will not occur by the end of the originally specified time period.

As of January 3, 2021, the remaining accumulated other comprehensive loss of $ 8.7 million associated with the interest rate swaps will be amortized to earnings over the remaining term of the interest rate swaps prior to termination.

Forward Contracts

5 unchanged sentences

Changes in fair value related to the effective portion of these contracts will be reflected as a component of other comprehensive income (or other comprehensive loss).

As of December 29, 2019 , all foreign currency forward contracts have expired.

The table below sets forth the fair value of derivative instruments as of December 29, 2019 (in thousands):

Asset Derivatives as of

December 29, 2019

Liability Derivatives as of

December 29, 2019

Balance Sheet

As of January 3, 2021 and December 29, 2019, 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 January 3, 2021, the Company had outstanding foreign currency options with an aggregate notional amount of $ 12.9 million.

The table below sets forth the fair value of derivative instruments as of January 3, 2021:

Asset Derivatives as of January 3, 2021 Liability Derivatives as of January 3, 2021

Balance Sheet

Location Fair Value Balance Sheet

Location Fair Value

(in thousands)

Derivative instruments designated as hedging instruments:

Foreign currency contracts

Other current assets

Accrued expenses

Interest rate swap contract

Other current assets

Accrued expenses

The table below sets forth the fair value of derivative instruments as of December 30, 2018 (in thousands):

Asset Derivatives as of

December 30, 2018

Liability Derivatives as of

December 30, 2018

Balance Sheet

Interest rate swap contracts Other current assets $ — Accrued expenses $ —

Derivative instruments not designated as hedging instruments:

Foreign currency options Other current assets 37 Accrued expenses —

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:

Foreign currency contracts

Other current assets

Other current liabilities

Interest rate swap contract

Other current assets

Other current liabilities

There was no significant impact to earnings from the changes in fair value of derivatives designated as cash flow hedges or from amounts excluded from the assessment of hedge effectiveness during 2019 .

We expect that approximately $ 1.6 million related to cash flow hedges will be reclassified from accumulated other comprehensive income 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 and included in the assessment of hedge effectiveness had on accumulated other comprehensive income, net of tax (in thousands):

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

We expect that approximately $ 4.2 million related to the terminated interest rate swaps will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.

2020 2019 2018

(in thousands)

Foreign currency contracts gain (loss) $ — $ 468 $ ( 468 )

Interest rate swap contracts (loss) gain

(Loss) gain recognized in accumulated other comprehensive income

The following table summarizes the gains and losses reclassified from accumulated other comprehensive income into earnings during 2019 (in thousands):

Interest rate swap contracts gain (loss) ( 2,027 ) ( 5,957 ) 890

Gain (loss) recognized in other comprehensive income (loss) $ ( 2,027 ) $ ( 5,489 ) $ 422

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into net income (loss) are discussed in Note 23 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”

The following table summarizes gains and losses on derivatives not designated as hedging instruments within the consolidated statements of operations:

Statement of Operations Location 2020 2019 2018

(in thousands)

Foreign currency contracts (loss)

Cost of sales

Interest rate swap contracts gain

Interest expense

Foreign currency options gain (loss) Other expense $ 13 $ ( 627 ) $ 992

NOTE 11 – LEASES

On December 31, 2018, the Company adopted the new lease standard using the transition methodology allowed by the standard to initially apply the new lease guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The comparative prior year periods presented in these financial statements continue to be in accordance with previous GAAP.

We have operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment.

1 unchanged sentence

Our lease terms may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option.

As of December 29, 2019 , there were no significant right-of-use assets and lease obligations from leases that had not commenced as of the end of fiscal 2019 .

The table below represents a summary of the balances recorded in the consolidated balance sheet related to our leases as of December 29, 2019 :

December 29, 2019

As of January 3, 2021, there were no significant leases that had not commenced as of the end of fiscal year 2020.

The table below represents a summary of the balances recorded in the consolidated balance sheets related to our leases as of January 3, 2021 and December 29, 2019:

January 3, 2021 December 29, 2019

Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases

(in thousands)

Balance Sheet Location

Operating Leases

Finance Leases

Operating lease right-of-use assets $ 98,013 $ 107,044

2 unchanged sentences

Total operating lease liabilities $ 100,023 $ 107,743

Property and equipment

Property, plant and equipment, net $ 6,138 $ 5,007

Accrued expenses $ 1,496 $ 1,489

10 unchanged sentences

Other Supplemental Information

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities 2,504 12,655

Rental expense amounted to approximately $ 28.5 million and $ 22.0 million for the years 2018 and 2017 , respectively.

December 29, 2019

Rental expense amounted to approximately $ 28.5 million for fiscal year 2018.

Lease Term and Discount Rate

The table below presents the weighted average remaining lease terms and discount rates for finance and operating leases as of January 3, 2021 and December 29, 2019:

End of Fiscal Year

Weighted-average remaining lease term – finance leases (in years) 3.35 2.76

3 unchanged sentences

Maturity Analysis

Maturity analysis of lease payments under non-cancellable leases were as follows:

Operating Leases

Finance Leases

A maturity analysis of lease payments under non-cancellable leases is presented as follows:

Fiscal Year Operating Leases Finance Leases

(in thousands)

2021 $ 19,055 $ 1,598

2022 15,680 1,128

2023 12,750 899

2024 10,715 577

2025 9,863 189

Thereafter 70,744 —

Total future minimum lease payments (undiscounted) 138,807 4,391

4 unchanged sentences

In addition, we elected the hindsight practical expedient to determine the lease term, which allows us to use hindsight when considering the impact of options to extend or terminate a lease as well as the option to purchase the underlying asset.

NOTE 12 – GOODWILL AND INTANGIBLE ASSETS

In connection with the nora acquisition on August 7, 2018, the Company recognized goodwill of $ 201.9 million and acquired intangible assets of $ 103.3 million.

Goodwill includes all purchase price accounting adjustments of approximately $ 18.6 million related to additional liabilities that existed at the acquisition date.

Goodwill and intangible assets were assigned pro-rata to the Company’s three operating segments.

None of the goodwill is expected to be deductible for income tax purposes.

During the first quarter of 2020, we performed a qualitative assessment of goodwill impairment indicators, considering macroeconomic conditions related to the COVID-19 pandemic and its potential impact to sales and operating income.

We expect that the duration of the COVID-19 pandemic and its adverse impacts on the global economy, global travel restrictions, COVID-19 related government shutdowns, disruptions to our supply chain, distribution disruption, and disruption to our customers’ plans to spend capital on projects that use our products and services will result in lower revenue and operating income.

As a result, we determined that there were indicators of impairment, and the Company proceeded with a quantitative assessment of goodwill for all reporting units at the end of the first quarter.

In performing the first quarter quantitative goodwill impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed.

Our reporting units are one level below our reporting segment level.

In preparing the valuations, past, present and future expectations of performance were considered, including the impact of the COVID-19 pandemic.

This methodology is consistent with the approach used to perform the annual quantitative goodwill assessment in prior years.

The weighted average cost of capital used in the goodwill impairment testing ranged between 10.0 % and 10.5 %, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit.

There is inherent uncertainty associated with key assumptions used in our impairment testing including the duration of the economic downturn associated with the COVID-19 pandemic and the recovery period.

As a result of the first quarter assessment, we determined that the fair value for two reporting units was less than the carrying value and recognized a goodwill impairment loss of $ 116.5 million in the first quarter of 2020.

The expected decline in revenue due to the impact of COVID-19 contributed to the lower fair value of our Europe and Asia-Pacific reporting units.

As such, the goodwill impairment loss was allocated to our Europe and Asia-Pacific reporting units in the amounts of $ 99.2 million and $ 17.3 million, respectively.

We determined that the goodwill in our Americas reporting unit was not impaired as the fair value exceeded the carrying value by more than 90 % at April 5, 2020.

During the fourth quarters of 2020, 2019 and 2018, the Company performed the annual goodwill impairment test, consistent with the methodology discussed above.

The Company performed this test at the reporting unit level, which is one level below the reporting segment level.

In preparing the valuations, past, present and future expectations of performance were considered, including the ongoing impact of the COVID-19 pandemic in 2020.

As of January 3, 2021, if the Company’s estimates of the fair values of its reporting units which carry a goodwill balance were 10 % lower, the Company still believes no goodwill impairment would have existed.

However, the full extent of the future impact of COVID-19 on the Company was and remains uncertain, and a prolonged COVID-19 pandemic could result in additional impairment of goodwill.

As of January 3, 2021, and December 29, 2019, the net carrying amount of goodwill was $ 165.8 million and $ 257.4 million, respectively.

The changes in the carrying amounts of goodwill for the years ended January 3, 2021 and December 29, 2019 are as follows:

(in thousands)

Balance, at December 30, 2018 $ 245,815

Purchase price accounting adjustments 17,181

Foreign currency translation ( 5,557 )

Balance, at December 29, 2019 257,439

Impairment ( 116,495 )

Foreign currency translation 24,833

Balance, at January 3, 2021 $ 165,777

Additionally, we determined that the trademarks and trade names intangible assets related to the acquired nora business were also impaired and recognized an impairment loss of $ 4.8 million in the first quarter of 2020.

There were no indicators of additional intangible asset impairment as of the end of fiscal year 2020.

The net carrying amount of indefinite-lived intangible assets was $ 60.4 million and $ 59.4 million as of January 3, 2021 and December 29, 2019, respectively.

The net carrying amount of intangible assets subject to amortization was $ 27.3 million and $ 29.7 million as of January 3, 2021 and December 29, 2019, respectively.

Amortization expense related to intangible assets during the years 2020, 2019 and 2018 was $ 5.5 million, $ 5.9 million and $ 5.4 million, respectively, and is recorded in cost of sales in the consolidated statements of operations.

As of January 3, 2021 and December 29, 2019, accumulated amortization related to intangible assets, including impacts of changes in foreign currency exchange rates, was $ 15.7 million and $ 12.9 million, respectively.

NOTE 13 – PREFERRED STOCK

2 unchanged sentences

In addition, any issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company.

As of December 29, 2019 and December 30, 2018 , there were no shares of preferred stock issued.

As of January 3, 2021 and December 29, 2019, there were no shares of preferred stock issued.

NOTE 14 – SHAREHOLDERS’ EQUITY

3 unchanged sentences

The future declaration and payment of dividends is at the discretion of the Company’s Board, and depends upon, among other things, the Company’s investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant at the time of the Board’s determination.

Such other factors include limitations contained in the agreement for its Syndicated Credit Facility, which specifies conditions as to when any dividend payments may be made.

Such other factors include limitations contained in the agreement for its Syndicated Credit Facility and the indenture governing its 5.50% Senior Notes due 2028, which specify conditions as to when any dividend payments may be made.

As such, the Company may discontinue its dividend payments in the future if its Board determines that a cessation of dividend payments is proper in light of the factors indicated above.

In 2016, the Company adopted a share purchase program to authorize the repurchase of up to $ 50 million of common stock.

This program had no specific expiration date.

During the first three months of 2017, the Company completed the $ 50 million repurchase program.

In the second quarter of 2017, the Company adopted a new share repurchase program in which the Company was authorized to repurchase up to $ 100 million of its outstanding shares of common stock.

In the second quarter of 2017, the Company adopted a share repurchase program in which the Company was authorized to repurchase up to $ 100 million of its outstanding shares of common stock.

The program had no specific expiration date.

Pursuant to the above-described programs, the Company has repurchased shares in the past three years as follows.

Pursuant to this program, the Company repurchased shares in the past three years as follows.

During 2018, the Company repurchased and retired 615,000 shares of common stock at a weighted average purchase price of $ 23.54 per share.

During 2019, the Company repurchased and retired a combined total of 1,556,000 shares under these plans, at an average purchase price of $ 16.13 per share.

During 2019 , the Company repurchased and retired a combined total of 1,556,000 shares under these plans, at an average purchase price of $ 16.13 per share.

As of December 29, 2019, the Company had completed the authorized share repurchase program.

All treasury stock is accounted for using the cost method.

The following tables depict the activity in the accounts which make up shareholders equity for the years 2019 , 2018 , and 2017 .

The following tables depict the activity in the accounts which make up shareholders equity for fiscal years 2020, 2019, and 2018:

SHARES COMMON STOCK ADDITIONAL

CAPITAL RETAINED

EARNINGS PENSION

LIABILITY FOREIGN

ADJUSTMENT CASH FLOW

(in thousands)

Balance, at December 29, 2019 58,416 $ 5,842 $ 250,306 $ 286,056 $ ( 56,700 ) $ ( 113,139 ) $ ( 4,163 )

Stock issuances under employee plans

Other issuances of common stock

Unamortized stock compensation expense related to stock awards

Cash dividends paid

Net loss — — — ( 71,929 ) — — —

Issuances of stock (other than restricted stock) 239 24 195 — — — —

Restricted stock issuances 304 30 3,999 — — — —

Unamortized compensation expense related to restricted stock awards — — ( 4,030 ) — — — —

Cash dividends declared — — — ( 5,565 ) — — —

Forfeitures and compensation expense related to stock awards ( 295 ) ( 31 ) ( 2,550 ) — — — —

Share repurchases

Pension liability adjustment — — — — ( 12,588 ) — —

Foreign currency translation adjustment — — — — — 52,808 —

Cash flow hedge unrealized gain

Balance, at December 29, 2019

Cash flow hedge unrealized loss — — — — — — ( 2,027 )

Balance, at January 3, 2021 58,664 $ 5,865 $ 247,920 $ 208,562 $ ( 69,288 ) $ ( 60,331 ) $ ( 6,190 )

SHARES COMMON STOCK ADDITIONAL

CAPITAL RETAINED

EARNINGS PENSION

LIABILITY FOREIGN

ADJUSTMENT CASH FLOW

(in thousands)

Balance, at December 30, 2018 59,508 $ 5,951 $ 270,269 $ 222,214 $ ( 43,610 ) $ ( 101,487 ) $ 1,326

Stock issuances under employee plans

Other issuances of common stock

Unamortized stock compensation expense related to stock awards

Cash dividends paid

Net income — — — 79,200 — — —

Issuances of stock (other than restricted stock) 511 51 636 — — — —

Restricted stock issuances 223 22 3,900 — — — —

Unamortized compensation expense related to restricted stock awards — — ( 4,139 ) — — — —

Cash dividends declared — — — ( 15,358 ) — — —

Forfeitures and compensation expense related to stock awards ( 270 ) ( 26 ) 4,638 — — — —

2 unchanged sentences

Foreign currency translation adjustment — — — — — ( 11,652 ) —

Cash flow hedge unrealized gain (loss)

Cash flow hedge unrealized loss — — — — — — ( 5,489 )

Balance, at December 29, 2019 58,416 $ 5,842 $ 250,306 $ 286,056 $ ( 56,700 ) $ ( 113,139 ) $ ( 4,163 )

CASH FLOW HEDGE

SHARES COMMON STOCK ADDITIONAL

CAPITAL RETAINED

EARNINGS PENSION

LIABILITY FOREIGN

ADJUSTMENT CASH FLOW HEDGE

(in thousands)

Balance, at January 1, 2017

Stock issuances under employee plans

Other issuances of common stock

Unamortized stock compensation expense related to stock awards

Cash dividends paid

Balance, at December 31, 2017 59,806 $ 5,981 $ 271,271 $ 187,432 $ ( 56,554 ) $ ( 78,943 ) $ 904

Net income — — — 50,253 — — —

Issuances of stock (other than restricted stock) 224 22 476 — — — —

Restricted stock issuances 182 18 4,809 — — — —

Unamortized compensation expense related to restricted stock awards — — ( 4,710 ) — — — —

Cash dividends declared — — — ( 15,471 ) — — —

Forfeitures and compensation expense related to stock awards ( 89 ) ( 9 ) 12,847 — — — —

2 unchanged sentences

Foreign currency translation adjustment — — — — — ( 22,544 ) —

Cash flow hedge unrealized gain (loss)

Windfall tax benefit - share-based payment awards

Adoption of new accounting standard - share-based payment awards

Cash flow hedge unrealized gain — — — — — — 422

Balance, at December 30, 2018 59,508 $ 5,951 $ 270,269 $ 222,214 $ ( 43,610 ) $ ( 101,487 ) $ 1,326

In the first quarter of 2020, the Company elected to change its method for recognizing forfeitures of share-based awards.

The cumulative effect of this change was $ 1.4 million of additional expense recognized in selling, general and administrative (“SG&A”) expenses within the consolidated statement of operations.

Prior to this change, the Company estimated forfeitures and reduced stock compensation expense based on that estimate.

Under the new forfeiture method, the Company accounts for forfeitures as they occur as permitted by generally accepted accounting principles.

Stock Options

Options are exercisable for shares of Common Stock at a price not less than 100 % of the fair market value on the date of grant.

The Company has an Omnibus Stock Incentive Plan (“Omnibus Plan”) under which a committee of independent directors is authorized to grant directors and key employees, including officers, restricted stock, incentive stock options, nonqualified stock options, stock appreciation rights, deferred shares, performance shares and performance units.

Stock options are exercisable for shares of Common Stock at a price not less than 100 % of the fair market value on the date of grant.

The options become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant.

1 unchanged sentence

In May 2015, the shareholders approved an amendment and restatement of the Omnibus Plan.

This amendment and restatement extended the term of the Omnibus Plan until February 2025, and set the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at 5,161,020 shares, except that each share issued pursuant to an award other than a stock option reduces the number of such authorized shares by 1.33 shares.

This amendment and restatement extended the term of the Omnibus Plan and set the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at 5,161,020 shares, except that each share issued under the 2015 plan pursuant to an award other than a stock option reduced the number of such authorized shares by 1.33 shares.

In May 2020, the shareholders approved the adoption of the 2020 Omnibus Stock Incentive Plan (“2020 Omnibus Plan”).

The aggregate number of shares of common stock that may be issued or transferred under the 2020 Omnibus Plan on or after the effective date of the plan is 3,700,000 (and the 1.33 multiplier discussed in the paragraph immediately above was eliminated).

No award may be granted after the tenth anniversary of the effective date of the 2020 Omnibus Plan.

Accounting standards require that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair market value of the award.

3 unchanged sentences

The Company uses the Black-Scholes model.

Accounting standards require that the Company estimate forfeitures for stock options and reduce compensation expense accordingly.

The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward.

This expense reduction is not significant to the Company.

All outstanding stock options vested prior to 2015 and therefore there were no stock option compensation expenses during 2019 , 2018 or 2017 .

The following table summarizes stock options outstanding as of December 29, 2019 , as well as activity during the previous fiscal year:

Weighted Average

All outstanding stock options vested prior to 2015, and therefore, there was no stock option compensation expense during 2020, 2019 or 2018.

The following table summarizes stock options outstanding as of January 3, 2021, as well as activity during the previous fiscal year:

Shares Weighted Average

Exercise Price

Outstanding at December 29, 2019 27,500 $ 12.43

Exercised ( 7,500 ) 12.43

Forfeited or canceled ( 20,000 ) 12.43

Outstanding at December 29, 2019 (a)

Exercisable at December 29, 2019 (b)

(a) At December 29, 2019 , the weighted-average remaining contractual life of options outstanding was less than 1 year.

(b) At December 29, 2019 , the weighted-average remaining contractual life of options exercisable was less than 1 year.

At December 29, 2019 , the aggregate intrinsic values of in-the-money options outstanding and options exercisable were $ 0.1 million and $ 0.1 million , respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option).

Outstanding at January 3, 2021 — $ —

Exercisable at January 3, 2021 — $ —

Restricted Stock Awards

During fiscal years 2020, 2019 and 2018, the Company granted restricted stock awards totaling 308,100 , 223,500 , and 194,000 shares, respectively, of Common Stock.

These awards (or a portion thereof) vest with respect to each recipient over a one to five year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date.

These awards (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, these shares (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause.

1 unchanged sentence

These grants are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized.

The Company estimates forfeitures for restricted stock and reduces compensation expense accordingly.

The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward.

The forfeiture rate has been developed using historical data regarding actual forfeitures as well as an estimate of future expected forfeitures under our restricted stock grants.

The following table summarizes restricted stock outstanding as of December 29, 2019 , as well as activity during the previous fiscal year:

Weighted Average

The Company has reduced its expense for restricted stock forfeited during the period.

The expense related to awards of restricted stock is captured in SG&A expenses on the consolidated statements of operations.

The following table summarizes restricted stock outstanding as of January 3, 2021, as well as activity during the previous fiscal year:

Shares Weighted Average

Outstanding at December 29, 2019 468,200 $ 28.63

Granted 308,100 13.08

Vested ( 176,100 ) 19.58

Forfeited or canceled ( 163,300 ) 19.49

Outstanding at December 29, 2019

As of December 29, 2019 , the unrecognized total compensation cost related to unvested restricted stock was $ 3.4 million .

Outstanding at January 3, 2021 436,900 $ 24.73

As of January 3, 2021, the unrecognized total compensation cost related to unvested restricted stock was $ 3.0 million.

That cost is expected to be recognized by the end of 2023.

As stated above, accounting standards require the Company to estimate forfeitures in calculating the expense related to stock-based compensation, as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur.

Performance Share Awards

In each of the years 2018-2020, 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 through the last date of the performance period, and will be settled in shares of our common stock or in cash at the Company’s election.

These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years , subject to (among other things) the employee’s continued employment through the last date of the performance period, 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 expense related to these performance shares is captured in selling, general and administrative expense on the consolidated statement of operations.

The following table summarizes the performance shares outstanding as of December 29, 2019 , as well as the activity during the year:

The expense related to these performance shares is captured in SG&A expenses on the consolidated statements of operations.

The following table summarizes the performance shares outstanding as of January 3, 2021, as well as the activity during the year:

Shares Weighted

Average Grant

1 unchanged sentence

Outstanding at December 29, 2019 512,000 $ 19.71

Granted 263,700 15.36

Vested ( 164,300 ) 19.74

Forfeited or canceled ( 206,100 ) 19.58

Outstanding at December 29, 2019

Compensation expense related to the performance shares for 2019 , 2018 , and 2017 was $ 5.4 million , $ 10.4 million and $ 4.5 million , respectively.

Unrecognized compensation expense related to these performance shares was approximately $ 3.1 million as of December 29, 2019 .

That cost is expected to be recognized by the end of 2022 .

Outstanding at January 3, 2021 405,300 $ 16.94

Compensation expense (benefit) related to the performance shares for 2020, 2019, and 2018 was $( 1.8 ) million, $ 5.4 million and $ 10.4 million, respectively.

Unrecognized compensation expense related to these performance shares was approximately $ 6.7 million as of January 3, 2021.

Depending on the performance of the Company, any compensation expense related to these outstanding performance shares will be recognized by the end of 2023.

The tax benefit recognized with respect to restricted stock and performance shares was $ 0.6 million, $ 1.4 million, and $ 2.4 million in 2020, 2019, and 2018, respectively.

10 unchanged sentences

The following tables show distributed and undistributed earnings:

Earnings per share:

Basic earnings per share

Earnings (Loss) Per Share 2020 2019 2018

Basic earnings (loss) per share:

Distributed earnings $ 0.10 $ 0.26 $ 0.26

Undistributed earnings

Diluted earnings per share

Undistributed earnings (loss) ( 1.33 ) 1.08 0.58

Total $ ( 1.23 ) $ 1.34 $ 0.84

Diluted earnings (loss) per share:

Distributed earnings $ 0.10 $ 0.26 $ 0.26

Undistributed earnings

Undistributed earnings (loss) ( 1.33 ) 1.08 0.58

Total $ ( 1.23 ) $ 1.34 $ 0.84

The following table presents net income that was attributable to participating securities:

2020 2019 2018

(in millions)

1 unchanged sentence

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

2020 2019 2018

(in thousands)

4 unchanged sentences

Shares for diluted earnings per share 58,547 58,948 59,566

For all periods presented, there were no stock options excluded from the determination of diluted EPS.

For all periods presented, there were no stock options or participating securities excluded from the determination of diluted EPS.

NOTE 16 – RESTRUCTURING AND OTHER CHARGES

For fiscal years 2019 , 2018 , and 2017 the Company recorded restructuring, asset impairment, and other charges of $ 12.9 million , $ 20.5 million , and $ 7.3 million , respectively, in the consolidated statements of operations.

The 2019 charge of $ 12.9 million includes $ 5.0 million of other non-cash charges unrelated to the 2019 exit activity and a net $ 1.0 million reduction in restructuring costs related to the 2018 restructuring plan.

As of December 29, 2019 the total restructuring reserve was $ 11.4 million for both the 2019 and 2018 restructuring plans.

Below is a discussion of restructuring activities by year.

2019 Restructuring Plan

On December 23, 2019, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved a reduction of approximately 105 employees and early termination of two office leases.

As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $ 9.0 million .

The charge is comprised of severance expenses ( $ 8.8 million ) and lease exit costs ( $ 0.2 million .)

The restructuring plan is expected to result in future cash expenditures of approximately $ 9.0 million for payment of the employee severance and lease exit costs, as described above.

The Company expects to complete the restructuring plan in fiscal year 2020, and expects the plan to yield annualized savings of approximately $ 6.0 million .

A portion of the annualized savings is expected to be realized on the income statement in fiscal year 2020, with the remaining portion of the annualized savings expected to be realized in fiscal year 2021.

A summary of the 2019 restructuring activities is presented below:

A summary of restructuring activities for the 2018 and 2019 restructuring plans is presented below:

Workforce Reduction Other Exit Costs

2019 Plan 2018 Plan 2019 Plan 2018 Plan Total

(in thousands)

Balance, at December 31, 2017 $ — $ — $ — $ — $ —

Charged to expenses — 10,816 — 1,144 11,960

Deductions — 53 — — 53

Balance, at December 30, 2018 — 10,763 — 1,144 11,907

Charged to expenses 8,827 ( 1,743 ) 188 672 7,944

Deductions 193 7,122 — 1,042 8,357

Charged to other accounts — — 49 — 49

Balance, at December 29, 2019 8,634 1,898 139 774 11,445

Workforce Reduction

Other Exit Costs

Charged to expenses ( 3,704 ) ( 223 ) — ( 699 ) ( 4,626 )

Deductions 3,866 1,675 139 75 5,755

Balance, at January 3, 2021 $ 1,064 $ — $ — $ — $ 1,064

For fiscal year 2020, the Company recorded a reduction of $ 4.6 million of previously recognized restructuring charges due to changes in expected cash payments.

For fiscal years 2019 and 2018, the Company recorded restructuring, asset impairment, and other charges of $ 12.9 million and $ 20.5 million, respectively, in the consolidated statements of operations.

The 2019 and 2018 charges include other non-cash charges not included in the above table as further described below.

As of January 3, 2021 the total restructuring reserve was $ 1.1 million for the 2019 restructuring plan.

The 2018 restructuring plan was completed as of January 3, 2021.

Other Non-Cash Charges

On December 23, 2019, unrelated to the restructuring activity discussed above, the Company recorded other non-cash charges of approximately $ 5.0 million primarily related to adjusting the carrying value of certain insurance related assets.

These charges are recorded in restructuring and other charges in the 2019 consolidated statement of operations.

On December 29, 2018, the Company recorded other non-cash charges of approximately $ 8.6 million as part of the 2018 restructuring plan primarily related to the write-down of certain underutilized and impaired assets that include information technology assets and obsolete manufacturing equipment.

These charges are recorded in restructuring, asset impairment and other charges in the 2018 consolidated statement of operations.

On December 23, 2019, unrelated to the restructuring activity presented in the table above, the Company recorded other non-cash charges of approximately $ 5.0 million primarily related to adjusting the carrying value of certain insurance related assets.

These charges are recorded in restructuring, asset impairment and other charges in the 2019 consolidated statement of operations.

2019 Restructuring Plan

On December 29, 2018, the Company committed to a new restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved (i) a restructuring of its sales and administrative operations in the United Kingdom, (ii) a reduction of approximately 200 employees, primarily in the Europe and Asia-Pacific geographic regions, and (iii) the write-down of certain underutilized and impaired assets that include information technology assets and obsolete manufacturing equipment.

On December 23, 2019, the Company committed to a restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved a reduction of approximately 105 employees and early termination of two office leases.

As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $ 9.0 million.

The charge is comprised of severance expenses ($ 8.8 million) and lease exit costs ($ 0.2 million).

The plan was expected to result in future cash expenditures of approximately $ 9.0 million for the payment of employee severance and lease exit costs.

In 2020, the Company recorded a reduction of $ 3.7 million of the previously recognized charges due to changes in expected cash payments for employee severance.

The plan was substantially completed at the end of fiscal year 2020, and the Company expects the plan to yield annualized savings of approximately $ 6.0 million.

A portion of the annualized savings was realized on the income statement in fiscal year 2020, with the remaining portion of the annualized savings expected to be realized in fiscal year 2021.

2018 Restructuring Plan

On December 29, 2018, the Company committed to a restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved (i) a restructuring of its sales and administrative operations in the United Kingdom, (ii) a reduction of approximately 200 employees, primarily in the Europe and Asia-Pacific geographic regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets and obsolete manufacturing equipment.

As a result of this plan, the Company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2018 of approximately $ 20.5 million.

1 unchanged sentence

The charge was expected to result in future cash expenditures of $ 12.0 million, primarily for severance payments (approximately $ 10.8 million).

The restructuring plan was substantially completed at the end of fiscal 2019.

The Company redeployed essentially all of the anticipated savings toward the funding of sales and strategic growth initiatives, yielding negligible net savings on the Company’s income statement.

The restructuring plan was substantially completed at the end of fiscal year 2019.

In the third quarter of 2019, the Company recorded $ 0.7 million of restructuring charges related to additional lease exit costs in connection with the restructuring plan announced on December 29, 2018.

In the fourth quarter of 2019, the Company adjusted its previously recorded severance expenses in connection with the 2018 restructuring plan and recognized a reduction in restructuring costs of $ 1.7 million in 2019.

A summary of these 2018 restructuring activities is presented below:

Balance at Beginning of Year

Deductions 2019

Charged to Expenses 2019

Balance at December 29, 2019

(in thousands)

Workforce Reduction

Other Exit Costs

2016 Restructuring Plan and 2017 Charge

In the fourth quarter of 2016, the Company committed to a separate restructuring plan.

The plan involved (i) a substantial restructuring of the FLOR business model that included closure of its headquarters office and most retail FLOR stores, (ii) a reduction of approximately 70 FLOR employees and a number of employees in the commercial carpet tile business, primarily in the Americas and Europe regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets, intellectual property assets, and obsolete manufacturing, office and retail store equipment.

As a result of this plan, the Company incurred pre-tax restructuring and asset impairment charges of $ 19.8 million in the fourth quarter of 2016 and $ 7.3 million in the first quarter of 2017.

This plan was completed at the end of fiscal year 2018.

In 2020, the Company further adjusted its previously recorded severance expenses and other exit costs and recognized a reduction in restructuring costs of $ 0.9 million.

The restructuring plan was completed as of January 3, 2021.

NOTE 17 – INCOME TAXES

Income before taxes on income consisted of the following:

Income (loss) before income taxes consisted of the following:

2020 2019 2018

(in thousands)

operations $ ( 7,104 ) $ 46,463 $ 35,728

Foreign operations ( 72,316 ) 55,353 19,263

Income before taxes

Income (loss) before income taxes $ ( 79,420 ) $ 101,816 $ 54,991

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:

2020 2019 2018

(in thousands)

Current expense (benefit):

Current expense

Federal $ ( 22,976 ) $ 8,414 $ ( 3,549 )

Foreign 14,822 14,513 14,548

State 529 2,312 2,628

Current expense (benefit) ( 7,625 ) 25,239 13,627

Deferred expense (benefit):

Federal 1,787 ( 625 ) 2,145

Foreign ( 2,422 ) ( 2,198 ) ( 11,228 )

State 769 200 194

Deferred expense (benefit) 134 ( 2,623 ) ( 8,889 )

Total income tax expense

Total income tax expense (benefit) $ ( 7,491 ) $ 22,616 $ 4,738

The Company’s effective tax rate was 9.4 %, 22.2 % and 8.6 % for fiscal years 2020, 2019 and 2018, respectively.

The following summary reconciles income taxes at the U.S.

federal statutory rate of 21% applicable for 2019 and 2018 and 35% applicable for 2017 to the Company’s actual income tax expense:

federal statutory rate of 21 % applicable for all periods presented to the Company’s actual income tax expense:

2020 2019 2018

(in thousands)

12 unchanged sentences

tax effects attributable to foreign operations ( 11,991 ) 783 ( 2,226 )

Valuation allowance effect – NOL

Federal tax credits

Valuation allowance effect 12,927 133 ( 79 )

Research and development tax credits ( 780 ) ( 700 ) ( 2,863 )

Goodwill impairment 24,464 — —

Changes in unrecognized tax benefits ( 14,962 ) ( 3,324 ) ( 1,010 )

Income tax expense

Other 130 455 ( 335 )

Income tax expense (benefit) $ ( 7,491 ) $ 22,616 $ 4,738

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic and provides certain tax relief to businesses.

Tax provisions of the CARES Act include, among other things, the deferral of certain payroll taxes, relief for retaining employees, and certain income tax provisions for corporations.

As of January 3, 2021, the Company deferred $ 4.1 million in payroll taxes under the CARES Act.

In addition, the Company benefited from the relaxed 163(j) limitation and the technical correction related to depreciation of leasehold improvements, all of which did not have a material impact on the Company’s effective tax rate during the year.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law.

Among the significant changes resulting from the law, the Tax Act reduced the U.S.

federal income tax rate from 35% to 21% effective for the year beginning January 1, 2018 and created a modified territorial tax system with a one-time mandatory “transition toll tax” on previously unrepatriated foreign earnings.

In accordance with SEC Staff Bulletin No.

2 unchanged sentences

During the year ended December 30, 2018, the Company completed its accounting for the provisional estimates of the Tax Act and finalized its measurement period adjustments related to the one-time transition tax and remeasurement of its net deferred tax asset, as further discussed below.

While the Company’s accounting for the recorded impact of the Tax Act is deemed complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the amounts in future periods.

Impacts of Deemed Repatriation:

The Tax Act imposed a one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain foreign subsidiaries (“E&P”).

As of December 31, 2017, the Company recorded a provisional tax expense of $ 11.7 million related to the one-time transition tax.

As of December 30, 2018, the Company had completed its assessment of the one-time transition tax which resulted in a $ 5.0 million decrease to the previously recorded provisional amount.

Remeasurement of Deferred Tax Assets and Liabilities:

As of December 31, 2017, the Company recorded a provisional tax expense of $ 3.5 million related to the remeasurement of its net deferred tax asset to reflect the change in corporate tax rate from 35% to 21% .

As of December 30, 2018, the Company had completed the accounting of remeasuring its net deferred tax asset which resulted in a $ 1.7 million decrease to the previously recorded provisional amount.

Deferred income taxes for the years ended December 29, 2019 and December 30, 2018 , 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.

As of December 30, 2018, the Company had completed the accounting of remeasuring its net deferred tax asset to reflect the change in corporate tax rate from 35 % to 21 % which resulted in a $ 1.7 million decrease to the previously recorded provisional amount.

Deferred income taxes for the years ended January 3, 2021 and December 29, 2019, 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 temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

End of Fiscal Year

(in thousands)

2 unchanged sentences

Net operating loss carryforwards 4,031 3,090

Federal tax credit carryforwards 10,412 —

Derivative instruments 2,680 1,638

Deferred compensation 20,244 20,194

Inventory 4,004 3,200

Prepaids, accruals and reserves 3,659 7,935

Pensions 11,485 9,229

Deferred tax asset, gross 84,659 75,139

Valuation allowance on net operating loss carryforwards

Valuation allowance ( 13,919 ) ( 971 )

Deferred tax asset, net $ 70,740 $ 74,168

2 unchanged sentences

Intangible assets 30,745 33,760

Lease asset 27,268 29,301

Foreign currency 606 3,026

Foreign withholding taxes on unremitted earnings

Foreign withholding and U.S.

state taxes on unremitted earnings 931 178

Deferred tax liabilities 86,872 90,035

Net deferred tax liabilities $ 16,132 $ 15,867

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at December 29, 2019 .

During the year ended December 29, 2019 , significant changes to the Company’s deferred tax balances included a $ 17.2 million increase in intangible deferred liability primarily related to its acquisition of nora.

Beginning in 2018, the Tax Act included two new U.S.

1 unchanged sentence

The Company has elected to account for tax effects of GILTI in the period when incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.

The Company had approximately $ 7.5 million in foreign net operating losses for which the Company applied a valuation allowance against $ 0.9 million of such losses.

The Company had approximately $ 87.6 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2035.

The Company has provided a valuation allowance against $ 14.6 million of such losses, which the Company does not expect to utilize.

In addition, the Company has approximately $ 36.0 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

As of December 29, 2019 , and December 30, 2018 , non-current deferred tax assets were reduced by approximately $ 2.8 million and $ 2.8 million , respectively, of unrecognized tax benefits.

As of January 3, 2021, the Company, as a result of amending prior year tax returns, has approximately $ 10.1 million of foreign tax credit carryforwards with expiration dates through 2029.

A full valuation allowance has been provided as the Company does not expect to utilize these foreign tax credits before the expiration dates.

As of January 3, 2021, the Company has approximately $ 142.7 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2036 and has provided a valuation allowance against $ 74.8 million of such losses, which the Company does not expect to utilize.

In addition, as of January 3, 2021, the Company has approximately $ 30.2 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

As of January 3, 2021, and December 29, 2019, non-current deferred tax assets were reduced by approximately $ 3.0 million and $ 2.8 million, respectively, of unrecognized tax benefits.

Historically, the Company has not provided for U.S.

federal and state income taxes on the undistributed accumulated earnings of its foreign subsidiaries, with the exception of its Canada subsidiaries, because such earnings were deemed to be permanently reinvested.

Due to the passage of the Tax Act on December 22, 2017, the Company was required to recognize U.S.

taxes as a result of the one-time transition tax on the higher of its accumulated earnings as of November 2, 2017, or December 31, 2017.

Although the one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain non-U.S.

subsidiaries, the GILTI provisions and the dividends received deduction created as a result of the Tax Act generally eliminates additional U.S.

income taxes and foreign withholding taxes on the undistributed accumulated earnings of its foreign subsidiaries, with the exception of its Canada subsidiaries and a specific portion of the undistributed earnings of foreign subsidiaries outside of Canada, because such earnings were deemed to be permanently reinvested.

Although the Tax Act of 2017 created a dividends received deduction that generally eliminates additional U.S.

federal income taxes on dividends from our foreign subsidiaries, the Company continues to assert that all of its undistributed earnings in its non-U.S.

subsidiaries, excluding subsidiaries within Canada, are indefinitely reinvested outside of the U.S.

subsidiaries, excluding undistributed earnings for which U.S.

income taxes and foreign withholding taxes have been provided, are indefinitely reinvested outside of the U.S.

The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future.

4 unchanged sentences

The Company’s federal income tax returns are subject to examination for the years 2017 to the present.

In addition, certain federal tax attribute carryovers established since 2001 could be adjusted as these amounts are still subject to examination.

The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2015 to the present.

The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2009 to the present.

During a check of the 2015 tax return of the Company’s UK subsidiary, Her Majesty’s Revenue & Customs (“HMRC”) issued a discovery assessment for the years 2012 through 2014 related to its intra-group financing arrangement.

The discovery assessment is currently under appeal.

HMRC has extended its check to tax year 2016, however, it has not issued an assessment beyond the 2014 tax year.

Management believes it is reasonably possible HMRC may propose additional assessments for tax years 2015 & 2016;

but does not anticipate the adjustments related to its intra-group financing arrangement would result in a material change to its financial position.

The Company will continue to evaluate the recognition criteria for unrecognized tax benefits as it relates to the HMRC review;

however, as of December 29, 2019 , recognition thresholds had not been met.

As of December 29, 2019 , and December 30, 2018 , the Company had $ 25.5 million and $ 28.1 million , respectively, of unrecognized tax benefits.

It is reasonably possible that approximately $ 10.5 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations.

If any of the $ 25.5 million of unrecognized tax benefits as of December 29, 2019 are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods.

During a review of the 2015 tax return of the Company’s U.K.

subsidiary, Her Majesty’s Revenue & Customs (“HMRC”) issued a discovery assessment for the years 2012 through 2014 related to the interest rate applied in its intra-group financing arrangement with a subsidiary in the Netherlands.

HMRC extended its inquiry to tax years 2016 and 2017;

although HMRC has not yet issued final assessments for tax years 2015 through 2017, the Company has received notices of amendment to the tax returns for these years.

The Company is in the process of filing a request with the Competent Authority of the Netherlands to initiate a mutual agreement procedure (“MAP”) under article 25 of the bilateral tax treaty between the United Kingdom and the Netherlands related to the double taxation arising from the HMRC adjustments.

Management believes it is more likely than not that the Company will obtain relief from double taxation through the MAP, and as such, does not anticipate the HMRC adjustments related to its intra-group financing arrangement with the Netherlands will result in a material change to its financial position.

The Company will continue to evaluate the progress of the MAP and will recognize all related adjustments when the recognition thresholds have been met.

As of January 3, 2021, and December 29, 2019, the Company had $ 10.8 million and $ 25.5 million, respectively, of unrecognized tax benefits.

For the years ended January 3, 2021 and December 29, 2019, the Company recognized as income tax benefits $ 15.0 million and $ 3.3 million, respectively, of previously unrecognized tax benefits.

Of the $ 15.0 million income tax benefits recognized for the year ended January 3, 2021, $ 12.7 million related to a worthless stock loss claimed on the Company’s exit of its broadloom business (discontinued operations).

It is reasonably possible that approximately $ 2.1 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations and settlements with taxing authorities.

If any of the $ 10.8 million of unrecognized tax benefits as of January 3, 2021 are recognized, there would be a favorable impact on the Company’s effective tax rate of approximately $ 10.0 million in future periods.

If the unrecognized tax benefits are not favorably settled, $ 7.8 million of the total amount of unrecognized tax benefits would require the use of cash in future periods.

The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 29, 2019 , the Company had accrued interest and penalties of $ 2.9 million , which is included in the total unrecognized tax benefit noted above.

As of January 3, 2021, the Company had accrued interest and penalties of $ 1.5 million, which is included in the total unrecognized tax benefit noted above.

The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

2020 2019 2018

(in thousands)

3 unchanged sentences

Decreases related to tax positions taken during the prior years ( 673 ) ( 2,809 ) —

Decreases related to settlements with taxing authorities

Decreases related to lapse of applicable statute of limitations ( 14,992 ) ( 1,266 ) ( 1,861 )

5 unchanged sentences

SEC Investigation

The Company received a letter in November 2017 from the Securities & Exchange Commission (the “SEC”) requesting that the Company voluntarily provide information and documents in connection with an investigation into the Company’s historical quarterly earnings per share (“EPS”) calculations and rounding practices during the period 2014-2017.

The Company subsequently received several subpoenas from the SEC requesting additional documents and information.

In the fourth quarter of 2018, the Company conducted at the SEC’s request an internal investigation into these and other related issues for seven quarters in 2015, 2016 and 2017.

On April 23, 2019, Gregory J.

Bauer, the Company’s Vice President and Chief Accounting Officer, went on paid administrative leave from the Company after it was learned that in 2018 in the process of collecting materials from 2015, 2016 and 2017 for production to the SEC, he added certain notes to those materials that were then produced to the SEC.

The Company believes at this time, however, that the after-the-fact inclusion of these notes had no impact on the EPS calculations that are the subject of the above-described investigation or on subsequent EPS calculations.

Since the inception of the investigation, the Company has cooperated and continues to cooperate with the SEC’s investigation.

As previously reported, since November 2017 the Securities & Exchange Commission (the “SEC”) had been conducting an investigation into the Company’s historical quarterly earnings per share calculations and rounding practices during the period 2014-2017.

In the third quarter of 2020, the Company successfully reached a settlement with the SEC in this matter.

The Company consented to the entry of an order by the SEC which states, among other things, that the Company was negligent in making certain accounting entries in 2015 and 2016.

As part of the settlement, the Company did not admit or deny any wrongdoing.

The Company paid a $ 5.0 million fine to resolve the matter, and was ordered to cease-and-desist from violating certain federal securities laws.

Lawsuit by Former CEO in Connection with Termination

1 unchanged sentence

Gould, then President and Chief Executive Officer, effective immediately, for violations of the Company’s working environment policies.

He remains a member of the Board of Directors of the Company.

On February 14, 2020, Mr.

6 unchanged sentences

Gould (two counts) and that the Company’s investigation into Mr.

Gould’s conduct that preceded the termination was negligently performed.

Gould’s conduct that preceded the termination was negligently performed (although the Court has since granted judgment on the pleadings in favor of the Company on Mr.

Gould’s putative claim of negligent investigation).

Among other unspecified relief, Mr.

Gould seeks $ 10 million in damages for the breach contract claim and $ 100 million for each of the other four claims, as well as attorneys’ fees.

Gould seeks in excess of $ 10 million in damages for the breach of contract claim and $ 100 million for each of the other claims, as well as attorneys’ fees.

The Company believes the lawsuit is without merit and intends to defend vigorously against it.

Putative Class Action Lawsuit

On November 12, 2020, the Company, the Company’s current and former president and chief executive officer, and its current chief financial officer were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York, Swanson v.

Interface, Inc.

(case :120-cv-05518).

The lawsuit is a federal securities law class action that alleges that the defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies.

The specific allegations relate to the subject matter of the concluded SEC investigation described above.

The complaint does not quantify the damages sought.

The Company is evaluating the lawsuit, but believes that it is without merit and that the Company has good defenses to it.

The Company intends to defend itself vigorously against the action and any other substantially similar ones that may be filed against it in the future.

NOTE 19 – EMPLOYEE BENEFIT PLANS

12 unchanged sentences

If a change in control of the Company occurs, as defined in the NSPs, the Company will contribute an amount to the rabbi trust sufficient to pay the obligation owed to each participant.

Deferred compensation in connection with the NSPs totaled $ 31.9 million and $ 28.7 million at December 29, 2019 and December 30, 2018 , respectively.

Deferred compensation in connection with the NSPs totaled $ 33.1 million and $ 31.9 million at January 3, 2021 and December 29, 2019, respectively.

The Company invests the deferrals in insurance instruments with readily determinable cash surrender values.

The value of the insurance instruments was $ 30.1 million and $ 26.4 million as of December 29, 2019 and December 30, 2018 , respectively.

The value of the insurance instruments was $ 33.9 million and $ 30.1 million as of January 3, 2021 and December 29, 2019, respectively.

In 2020, the Company temporarily suspended its 401(k) and NSP matching contributions described above.

These employer matching contributions were resumed in 2021.

Multiemployer Plan

As discussed below, on December 31, 2019, a plan amendment was executed to eliminate future service accruals in the Dutch defined benefit plan, resulting in a curtailment of the plan.

This plan remains in existence and will continue to pay vested benefits.

Active participants no longer accrue benefits after December 31, 2019, and instead participate in the Industry-Wide Pension Fund (the “IWPF”) multi-employer plan beginning in fiscal year 2020.

During 2020, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 2.5 million.

The Company’s contributions into the IWPF are less than 5 % of total plan contributions.

The IWPF is more than 95 % funded at the end of 2019, which is the latest date plan information is available.

The IWPF multi-employer plan is not considered to be significant based on the funded status of the plan and our contributions.

Foreign Defined Benefit Plans

4 unchanged sentences

The Company uses a year-end measurement date for the plans, which is the closest practical date to the Company’s fiscal year end.

On December 31, 2019, a plan amendment was executed to eliminate future service accruals in the Dutch defined benefit plan.

As described above, on December 31, 2019, a plan amendment was executed to eliminate future service accruals in the Dutch defined benefit plan.

The Dutch plan will remain in existence and continue to pay vested benefits.

The reduction in future benefit accruals resulted in a curtailment of the plan.

Participants in the Dutch plan will no longer accrue benefits under the plan after December 31, 2019, and will participate in an industry-wide multi-employer plan beginning in fiscal year 2020.

Participants in the Dutch plan will no longer accrue benefits under the plan after December 31, 2019 and will participate in the IWPF beginning in fiscal year 2020.

Although the Dutch plan is frozen to new participants, vested benefits prior to the curtailment will continue to be accounted for in accordance with applicable accounting standards for defined benefit plans.

2 unchanged sentences

The Company will fund the cost to guarantee vested benefits and this amount will be recorded as an obligation on the Company’s consolidated balance sheet.

The curtailment of the Dutch plan resulted in a decrease to the projected benefit obligation with an offsetting actuarial gain recognized in accumulated other comprehensive income of approximately $ 2.4 million in fiscal 2019 .

The accumulated net actuarial loss for the Dutch plan, after the impact of the curtailment, was $ 16.7 million at December 29, 2019.

This amount will be reclassified out of accumulated other comprehensive income and increase pension expense over the life expectancy of vested participants when the actuarial loss exceeds the 10% corridor.

The curtailment also resulted in a $ 0.5 million reclassification of prior service cost from accumulated other comprehensive income, which was recognized as a reduction of pension expense in fiscal 2019 .

As discussed above, the Company still has an obligation to pay vested benefits in the frozen Dutch plan.

As of December 29, 2019 , the under-funded status of the Dutch plan, after the impact of the curtailment, of $ 8.7 million is recorded on the Consolidated Balance Sheet in other long-term liabilities.

As of January 3, 2021, the under-funded status of the Dutch plan of $ 6.8 million is recorded on the consolidated balance sheet in other long-term liabilities.

Pension expense was $ 2.5 million, $ 2.3 million, and $ 1.7 million for the years 2020, 2019 and 2018, respectively.

Plan assets are primarily invested in insurance contracts and equity and fixed income securities.

As of December 29, 2019 , for the European plans, the Company had a net liability recorded of $ 48.4 million , an amount equal to their underfunded status, and had recorded in Other Comprehensive Income an amount equal to $ 47.6 million (net of taxes of approximately $ 16.6 million ) related to the future amounts to be recorded in net post-retirement benefit costs.

As of January 3, 2021, for the European plans, the Company had a net liability recorded of $ 60.9 million, an amount equal to their underfunded status, and had recorded in accumulated other comprehensive loss an amount equal to $ 58.3 million (net of taxes of approximately $ 18.7 million) related to the future amounts to be recorded in net periodic benefit costs.

In the next fiscal year, approximately $ 1.5 million will be reclassified from accumulated other comprehensive loss into net periodic benefit cost.

The tables presented below set forth the funded status of the Company’s significant foreign defined benefit plans and required disclosures in accordance with applicable accounting standards:

2 unchanged sentences

Benefit obligation, beginning of year $ 314,841 $ 285,508

Service cost 1,070 1,589

Interest cost 4,038 5,676

Benefits and expenses paid ( 12,041 ) ( 13,034 )

Business combinations

Actuarial loss (gain) 31,618 37,409

17 unchanged sentences

Accumulated benefit obligation $ 364,443 $ 314,841

The pension liability above includes non-current liabilities of $ 48.4 million and $ 35.3 million as of December 29, 2019 and December 30, 2018 , respectively.

The January 3, 2021 pension liability above includes current liabilities of $ 1.1 million and non-current liabilities of $ 59.8 million and $ 48.4 million as of January 3, 2021 and December 29, 2019, respectively.

The above disclosure represents the aggregation of information related to the Company’s three defined benefit plans which cover many of its European employees.

As of December 29, 2019 and December 30, 2018 , one of these plans, which primarily covers certain employees in the United Kingdom (the “UK Plan”), had assets in excess of the accumulated benefit obligation.

As of December 29, 2019, one of these plans, which primarily covers certain employees in the United Kingdom (the “UK Plan”), had assets in excess of the accumulated benefit obligation, but its assets were less than the accumulated benefit obligation as of January 3, 2021.

The nora Plan is an unfunded defined benefit plan and the accumulated benefit obligation exceeded plan assets.

The following table summarizes this information as of December 29, 2019 and December 30, 2018 .

The following table summarizes this information as of January 3, 2021 and December 29, 2019.

End of Fiscal Year

2 unchanged sentences

Accumulated benefit obligation 198,215 170,958

Plan assets 193,991 174,156

Projected benefit obligation $ 116,379 $ 100,996

Accumulated benefit obligation 116,379 100,996

Plan assets 109,540 92,294

Projected benefit obligation $ 49,849 $ 42,887

Accumulated benefit obligation 49,849 42,887

Plan assets — —

2020 2019 2018

(in thousands)

Components of net periodic benefit cost:

Service cost $ 1,070 $ 1,589 $ 1,112

Interest cost 4,038 5,676 5,467

4 unchanged sentences

Net periodic benefit cost $ 2,507 $ 2,305 $ 1,712

In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income in the consolidated statements of operations, while all other components of net periodic benefit costs are presented within other expense in the consolidated statements of operations.

During 2020, other comprehensive income was impacted after tax by approximately $ 7.4 million comprised of actuarial loss of approximately $ 8.6 million and amortization of $ 1.2 million.

2020 2019 2018

Weighted average assumptions used to determine net periodic benefit cost:

7 unchanged sentences

The investment objectives of the foreign defined benefit plans are to maximize the return on the investments without exceeding the limits of the prudent pension fund investment, to ensure that the assets would be sufficient to exceed minimum funding requirements, and to achieve a favorable return against the performance expectation based on historic and projected rates of return over the short term.

The investment objectives of the foreign defined benefit plans are to maximize the return on the investments to ensure that the assets are sufficient to exceed minimum funding requirements, and to achieve a favorable return against performance expectations based on historical and projected rates of return over the short term.

The goal is to optimize the long-term return on plan assets at a moderate level of risk, by balancing higher-returning assets, such as equity securities, with less volatile assets, such as fixed income securities.

The assets are managed by professional investment firms and performance is evaluated periodically against specific benchmarks.

The plans’ net assets did not include the Company’s own stock at December 29, 2019 or December 30, 2018 .

The plans’ net assets did not include the Company’s own stock at January 3, 2021 or December 29, 2019.

Dutch Plan Assets and Indexation Benefit

8 unchanged sentences

After the plan curtailment on December 31, 2019, as discussed above, any shortfall in plan assets to pay vested benefits will be funded by the Company.

As it relates to the indexation benefit for 2017 and 2016, prior actual and future projected returns on Dutch Plan assets had been determined to be sufficient to provide for the indexation benefit for these years, therefore the Company and the insurer agreed that it was appropriate to provide the indexation benefit under the Contract.

The indexation benefit became payable by the insurer under the Contract, and consequently was recorded as a Plan asset.

The corresponding obligation to pay the indexation amount to pensioners thus became a pension liability.

During 2018, the Company and the insurer, based on the expected future returns under the investment assets included in the insurance contract, determined that the indexation was not probable and was not included as an asset and liability as of the end of 2018.

As of December 31, 2017, this indexation liability and corresponding asset was $ 32.7 million .

The inclusion or exclusion of this amount does not have any impact on the funded status of the plan, as both the indexation asset and liability are recorded at the same amount.

This indexation asset, along with the remainder of the assets under the Dutch Plan, are identified as Level Three assets under the fair value hierarchy.

Under the express terms of the Contract, contract value is the greater of (i) the value of the discounted vested benefits of the Dutch Plan (i.e., the benefit amount guaranteed by the insurance company), and (ii) the fair value of the underlying investment assets held by the insurance company under the Contract.

The assets under the Dutch plan, including any indexation benefit, are identified as Level 3 assets under the fair value hierarchy.

Under the express terms of the Contract, contract value is the greater of (i) the value of the discounted vested benefits of the Dutch plan and (ii) the fair value of the underlying investment assets held by the insurance company under the Contract.

As between those two values, the former was the greater for 2020 and 2019 and this represents the plan assets as shown above for the Dutch plan.

However, as explained above, the Contract also will pay the indexation benefit if sufficient assets are available, which the Company believes not to be probable as of the end of 2019 based on recent returns.

This indexation was considered probable as of the end of 2018 , and the Company believed that it was appropriate to include the value of the indexation payments, that were added to the vested benefit amounts.

As explained above, these indexation benefits will be paid out of the Contract if asset returns continue to exceed expectations.

At December 30, 2018, the asset returns were not of an expected amount to allow for indexation and the Company can, at any time, remove this indexation benefit.

The removal of the indexation asset is presented as a negative return on assets, and the removal of the indexation liability is represented by a change in actuarial assumptions in the company’s presentation of 2018 projected benefit obligation.

The indexation benefit for 2019 is not significant.

Because the Company will fund the cost to guarantee vested benefits, the Company has recorded a provision, which reduces the Dutch plan assets, that consists of the net present value of the expected future guarantee payments due to the insurance company pursuant to the Company’s guarantee.

As explained above, the Contract also will pay the indexation benefit if sufficient assets are available, which the Company believes not to be probable as of the end of 2020 based on recent returns.

The indexation benefit for 2020 and 2019 is not significant.

The Company’s actual weighted average asset allocations for 2020 and 2019, and the targeted asset allocation for 2021, of the foreign defined benefit plans by asset category, are as follows:

Target Allocation

Percentage of Plan Assets at Year End

Asset Category:

2021 2020 2019

Asset Category Target Allocation Percentage of Plan Assets at Year End

Equity securities 1 % — 3 % 3 % 3 %

2 unchanged sentences

Other investments 35 % — 40 % 37 % 35 %

The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value, as of December 29, 2019 and December 30, 2018 .

100 % 100 % 100 %

The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value, as of January 3, 2021 and December 29, 2019.

The nora plan is currently unfunded.

1 unchanged sentence

As noted above, the Dutch pension plan assets as represented by the insurance contract are classified as a Level 3 asset and included in the “Other” asset category.

Pension Plan Assets by Category as of December 29, 2019

Pension Plan Assets by Category as of January 3, 2021

Dutch Plan UK Plan Total

(in thousands)

Level 1 $ — $ 70,904 $ 70,904

Level 2 — 95,004 95,004

Level 3 109,540 28,083 137,623

Total $ 109,540 $ 193,991 $ 303,531

Pension Plan Assets by Category as of December 29, 2019

Dutch Plan UK Plan Total

(in thousands)

Level 1 $ — $ 64,151 $ 64,151

Level 2 — 87,047 87,047

Level 3 92,294 22,958 115,252

Total $ 92,294 $ 174,156 $ 266,450

The tables below detail the foreign defined benefit plans’ assets by asset allocation and fair value hierarchy:

FISCAL YEAR 2019

End of Fiscal Year 2020

Asset Category Level 1 Level 2 Level 3

(in thousands)

3 unchanged sentences

Other investments (2)

FISCAL YEAR 2018

$ 70,904 $ 95,004 $ 137,623

End of Fiscal Year 2019

Asset Category Level 1 Level 2 Level 3

(in thousands)

3 unchanged sentences

Other Investments (2)

$ 64,151 $ 87,047 $ 115,252

(1) Short-term investments are generally invested in interest-bearing accounts.

(2) Other investments is comprised of insurance contracts.

Assets identified as level 2 above pertain to corporate bonds and other debt securities.

The fair values of these assets are calculated based on quoted market prices for similar assets.

With the exception of the Dutch plan assets as discussed above, the assets identified as level 3 above in 2020 and 2019 relate to insured annuities and direct lending assets held by the UK Plan.

The fair value of these assets was calculated using the present value of the future cash flows due under the insurance annuities and for the direct lending assets the value is based on the asset value from the latest available valuation with adjustments for any drawdowns and distribution payments made between the valuation date and the reporting date.

The range of discount rates used in the fair value calculation of level 3 assets held by the Dutch plan and the UK Plan were 0.50 % to 1.30 % for 2020 and 1.0 % to 2.10 % for 2019.

The weighted average discount rates were 0.52 % and 1.02 % for 2020 and 2019, respectively.

These amounts are weighted based on the fair value of level 3 plan assets subject to fluctuations in the discount rate.

Any changes in these variables will impact the fair value of level 3 assets.

The table below indicates the change in value related to these level 3 assets during 2020 and 2019:

5 unchanged sentences

Translation adjustment 11,233 ( 2,229 )

Ending Balance of level 3 assets

Balance of level 3 assets, end of year $ 137,623 $ 115,252

(1) Includes $ 10.1 million and $ 6.2 million for 2020 and 2019, respectively, of unrealized gains recognized during the period in other comprehensive income (loss) for assets held at year end.

During 2021, the Company expects to contribute $ 5.2 million to the plans.

It is anticipated that future benefit payments for the foreign defined benefit plans will be as follows:

EXPECTED PAYMENTS

Fiscal Year Expected Payments

(in thousands)

2021 $ 12,038

2026-2030 66,169

Domestic Defined Benefit Plan

18 unchanged sentences

The amounts recognized in the consolidated balance sheets are as follows:

End of Fiscal Year

(in thousands)

5 unchanged sentences

Unrecognized actuarial loss $ 11,031 $ 9,139

The accumulated benefit obligation related to the SCP was $ 31.7 million and $ 29.1 million as of December 29, 2019 and December 30, 2018 , respectively.

The accumulated benefit obligation related to the SCP was $ 33.8 million and $ 31.7 million as of January 3, 2021 and December 29, 2019, respectively.

The SCP is currently unfunded;

1 unchanged sentence

The Company uses insurance instruments to help limit its exposure under the SCP.

2020 2019 2018

(in thousands, except for assumptions)

6 unchanged sentences

Components of net periodic benefit cost:

Service cost $ — $ — $ —

Interest cost 938 1,154 1,082

4 unchanged sentences

It is anticipated that future benefit payments for the SCP will be as follows:

EXPECTED PAYMENTS

Fiscal Year Expected Payments

(in thousands)

2026-2030 9,447

NOTE 20 – ACQUISITION OF NORA

4 unchanged sentences

The option instrument had a notional value of € 315 million (or approximately $ 364 million as of the end of the second quarter of 2018) and an initial maturity of 120 days.

Upon completion of the nora acquisition as discussed below, the option instrument was terminated and the Company recognized a loss of approximately $ 1.4 million upon termination, which was recorded in other expense in our Consolidated Condensed Statement of Operations during the third quarter of 2018.

Upon completion of the nora acquisition as discussed below, the option instrument was terminated and the Company recognized a loss of approximately $ 1.4 million upon termination, which was recorded in other expense in our consolidated statement of operations during the third quarter of 2018.

On August 7, 2018, the Company completed the acquisition of nora for a purchase price of € 385.1 million, or $ 447.2 million at the exchange rate as of the transaction date, including acquired cash of € 40.0 million ($ 46.5 million) for a net purchase price of € 345.1 million ($ 400.7 million).

3 unchanged sentences

The results of operations for this acquisition have been consolidated with those of the Company from the acquisition date forward.

Tangible assets and liabilities of nora systems GmbH were valued as of the acquisition date using a market analysis, and intangible assets were valued using a discounted cash flow analysis.

Tangible assets and liabilities of nora were valued as of the acquisition date using a market analysis, and intangible assets were valued using a discounted cash flow analysis.

During the second quarter of 2019, the Company recognized a measurement period adjustment to adjust provisional amounts initially recorded for assumed deferred tax liabilities.

14 unchanged sentences

This step-up of inventory to fair value was fully amortized by the end of 2018.

As of December 29, 2019 , recognized goodwill of $ 192.7 million and net intangible assets of $ 89.1 million were assigned pro-rata to the Company’s three operating segments.

Recognized goodwill and intangible assets were assigned pro-rata to the Company’s three operating segments.

None of the goodwill is expected to be deductible for income tax purposes.

See Note 12 entitled “Goodwill and Intangible Assets” for additional information.

The Company recognized $ 9.5 million of transaction costs related to the nora acquisition for 2018.

3 unchanged sentences

These are estimated for pro forma purposes only and do not necessarily reflect the results had nora been included as of the beginning of 2018.

Pro Forma Consolidated Statement of Operations

(in thousands)

Revenue $ 1,340,449

Net income 96,909

Pro forma net income for 2018 excludes any transaction related costs as these are non-recurring costs for the combined Company.

7 unchanged sentences

and (e) the nature of the regulatory environment.

Nora results are included in the 2018 figures as of the date of acquisition through the end of 2018, and are included in our operating segments based on the geographic split of the operations.

Nora results are included in the figures since the date of acquisition, and are included in our operating segments based on the geographic split of the operations.

During 2020, the Company changed the structure of its operating segments related to nora assets to align with where the assets are physically located.

Certain nora assets that were previously reported within the Europe operating segment are now reported within the Americas and Asia-Pacific operating segments based on the geographical location of the assets.

Total assets in the prior period presented have been revised to reflect this change.

While the Company operates as one reporting segment for the reasons discussed, included below is selected information on our operating segments.

Summary information by operating segment follows:

(in thousands)

Depreciation and amortization

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

FISCAL YEAR ENDED

Summary information by operating segment and reconciliations to the corresponding consolidated amounts follows:

2020 2019 2018

(in thousands)

Americas $ 593,418 $ 757,112 $ 682,261

Europe 351,287 393,194 319,677

Asia-Pacific 158,557 192,723 177,635

Total net sales $ 1,103,262 $ 1,343,029 $ 1,179,573

Depreciation and Amortization

Americas $ 13,609 $ 12,917 $ 13,732

Europe 18,678 18,452 12,862

Asia-Pacific 7,780 8,302 8,567

Total segment depreciation and amortization 40,067 39,671 35,161

1 unchanged sentence

Reported depreciation and amortization $ 45,920 $ 44,932 $ 39,084

End of Fiscal Year

(in thousands)

Americas $ 800,068 $ 769,301

Europe 499,186 567,866

Asia-Pacific 183,109 210,142

Total segment assets 1,482,363 1,547,309

Corporate assets 111,073 141,942

Reported total assets

Eliminations ( 287,425 ) ( 266,202 )

Total reported assets $ 1,306,011 $ 1,423,049

Total assets in the table above include operating lease right-of-use assets for fiscal years 2020 and 2019.

Below is a summary of the operating lease right-of-use assets by operating segment and a reconciliation to the consolidated amounts:

End of Fiscal Year

Operating Lease Right-of-Use Assets 2020 2019

(in thousands)

Americas $ 11,945 $ 20,126

Europe 65,473 66,038

Asia-Pacific 8,792 8,259

Total segment operating lease right-of-use assets 86,210 94,423

Corporate operating lease right-of-use assets 11,803 12,621

Total operating lease right-of-use assets $ 98,013 $ 107,044

The Company has a large and diverse customer base, which includes numerous customers located in foreign countries.

2 unchanged sentences

These sales were primarily to customers in Europe, Canada, Asia, Australia and Latin America.

With the exception of the United States, no one country represented more than 10% of the Company’s net sales.

Other than the United States and Germany in 2020, and the United States in 2019 and 2018, no one country represented more than 10 % of the Company’s net sales during the past three years.

Revenue and long-lived assets related to operations in the United States and other countries are as follows:

(in thousands)

Sales to Unaffiliated Customers (1)

2020 2019 2018

(in thousands)

United States $ 545,183 $ 681,868 $ 600,093

Foreign countries

Germany 115,402 117,418 75,958

Other foreign countries 442,677 543,743 503,522

Total net sales $ 1,103,262 $ 1,343,029 $ 1,179,573

End of Fiscal Year

Long-Lived Assets (2)

(in thousands)

United States $ 163,983 $ 132,390

Foreign countries

Germany 79,294 76,448

Netherlands 51,190 48,220

Other foreign countries 64,569 67,527

Total long-lived assets $ 359,036 $ 324,585

(1) Revenue attributed to geographic areas is based on the location of the customer.

(2) Long-lived assets include tangible assets physically located in foreign countries.

(2) Long-lived assets attributed to geographic areas are based on the physical location of the asset.

2020 includes $ 1.8 million and $ 4.3 million of leased equipment in the United States and foreign countries, respectively.

2019 includes $ 0.6 million and $ 4.4 million of leased equipment in the United States and foreign countries, respectively.

NOTE 22 – QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)

3 unchanged sentences

(in thousands, except per share data)

Net sales $ 288,169 $ 259,504 $ 278,642 $ 276,947

Gross profit 114,311 97,294 102,162 96,807

Net income (loss) ( 102,167 ) 4,709 5,913 19,616

Basic income (loss) per share $ ( 1.75 ) $ 0.08 $ 0.10 $ 0.33

Diluted income (loss) per share $ ( 1.75 ) $ 0.08 $ 0.10 $ 0.33

High $ 17.57 $ 11.04 $ 8.94 $ 10.53

Low $ 5.06 $ 6.77 $ 5.88 $ 5.92

(1) Results for the first quarter of 2020 include purchase accounting amortization of $ 1.3 million, goodwill and intangible asset impairment charge of $ 121.3 million, impact of change in equity award forfeiture accounting of $ 1.4 million, and restructuring charges of $( 1.1 ) million.

(2) Results for the second quarter of 2020 include purchase accounting amortization of $ 1.3 million, severance, lease exit and asset impairment charges of $ 8.8 million, and a warehouse fire loss of $ 4.2 million.

(3) Results for the third quarter of 2020 include purchase accounting amortization of $ 1.4 million, severance charges and restructuring adjustments of $ 5.8 million, and an SEC fine of $ 5.0 million.

(4) Results for the fourth quarter of 2020 include purchase accounting amortization of $ 1.4 million, severance, lease exit, restructuring adjustments and asset impairment charges of $ 3.2 million, loss on extinguishment of debt of $ 3.6 million, loss on discontinuance of interest rate swaps of $ 3.9 million, and recognition of income tax benefits related to uncertain tax positions taken in prior years of $ 12.7 million.

FISCAL YEAR 2019

(in thousands, except per share data)

Net sales $ 297,688 $ 357,507 $ 348,352 $ 339,482

Gross profit (5)

116,522 140,730 137,744 137,971

Net income 7,059 29,499 26,210 16,432

Basic income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28

Diluted income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28

High $ 19.40 $ 17.22 $ 15.84 $ 17.68

Low $ 13.87 $ 14.30 $ 10.37 $ 13.32

(1) Results for the first quarter of 2019 include purchase accounting amortization of $ 1.9 million.

2 unchanged sentences

(4) Results for the fourth quarter of 2019 include purchase accounting amortization of $ 1.3 million and restructuring and other charges of $ 12.3 million.

FISCAL YEAR 2018

(in thousands, except per share data)

Basic income per share

Diluted income per share

Results for the second quarter of 2018 include transaction related expenses of $ 5.8 million .

Results for the third quarter of 2018 include purchase accounting amortization of $ 20.3 million and transaction related expenses of $ 2.4 million .

Results for the fourth quarter of 2018 include tax benefit of $ 6.7 million as a result of the finalization of the Company’s analysis of the U.S.

Tax Cuts and Jobs Act, as well as restructuring and asset impairment charges of $ 20.5 million .

Results for the fourth quarter of 2018 include purchase accounting amortization of $ 11.8 million and transaction related expense of $ 1.2 million .

NOTE 22 – ITEMS RECLASSIFIED FROM OTHER COMPREHENSIVE INCOME

During 2019 , 2018 , and 2017 , the Company reclassified $ 1.0 million , $ 1.8 million , and $ 1.6 million , respectively, out of accumulated other comprehensive income related to the Company’s defined benefit retirement plans and salary continuation plan.

These reclassifications were included in the selling, general and administrative expenses line item of the Company’s consolidated statement of operations.

Other reclassifications out of accumulated other comprehensive income related to currency forward contracts are discussed in Note 10 entitled “ Derivative Instruments ”.

NOTE 23 – SUBSEQUENT EVENTS

On January 19, 2020, the Company’s Board of Directors voted to terminate for cause the employment of then President and Chief Executive Officer, Jay Gould.

As of December 29, 2019, the Company had accrued compensation expense for bonuses and equity awards to this individual.

Because the termination was for cause, the Company is not obligated to pay these amounts, and the Company consequently expects to reverse $ 4.4 million in accrued expenses related to these obligations in the first quarter of 2020.

As disclosed in Note 17 , subsequent to his termination, the former officer filed a lawsuit against the Company alleging, among other things, that the termination was unlawfully retaliatory and constituted a breach of his employment contract, and that the Company defamed him in connection with the termination.

(5) Gross profit reflects certain classification and presentation changes related to customer service and other costs.

Reclassifications of previously reported cost of sales to conform to the current presentation were $ 1.1 million for the first quarter, $ 2.1 million for the second quarter, $ 2.0 million for the third quarter and $ 2.3 million for the fourth quarter.

See Note 1 entitled “Summary of Significant Accounting Policies” for additional information.

NOTE 23 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS

Amounts reclassified out of accumulated other comprehensive loss (“AOCI”) to the consolidated statements of operations for the fiscal years 2020, 2019, and 2018, are reflected in the tables below:

Statement of Operations Location 2020 2019 2018

(in thousands)

Foreign currency contracts loss Cost of sales $ — $ ( 450 ) $ ( 468 )

Interest rate swap contracts gain (loss) Interest expense ( 7,287 ) 151 890

Amortization of benefit plan prior service cost and net actuarial losses Other expense ( 2,213 ) ( 976 ) ( 1,831 )

Total loss reclassified from AOCI $ ( 9,500 ) $ ( 1,275 ) $ ( 1,409 )

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Interface, Inc.

and Subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, the related consolidated statements of operations, comprehensive income, and cash flows for each of the three years in the period ended December 29, 2019, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 26, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended December 29, 2019 due to the adoption of the Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”).

and Subsidiaries (the “Company”) as of January 3, 2021 and December 29, 2019, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 3, 2021, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of January 3, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

11 unchanged sentences

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

As described in Note 1, the Company’s net consolidated goodwill was $257.4 million as of December 29, 2019, which is tested for impairment annually or when impairment indicators exist.

The Company prepared valuations of its reporting units using both a market approach and an income approach.

The determination of the fair value of the reporting units requires management to make significant estimates and assumptions related to forecasts of future revenue, operating margins, and discount rates.

We identified the valuation of certain reporting units during the annual impairment assessment of goodwill as a critical audit matter.

As described in Notes 1 and 12 to the consolidated financial statements, the Company’s consolidated goodwill balance was $165.8 million as of January 3, 2021.

Goodwill is tested for impairment annually as of the measurement date or more frequently if events or changes in circumstances indicate the asset might be impaired.

During the first quarter of fiscal 2020, the Company concluded that a triggering event occurred for each of its reporting units due to the deterioration in the macroeconomic conditions related to the COVID-19 pandemic.

As a result of the first quarter quantitative goodwill impairment testing, the Company recorded a goodwill impairment charge for the Europe and Asia-Pacific reporting units in the amounts of $99.2 million and $17.3 million, respectively.

During the fourth quarter of fiscal 2020, the Company performed the annual impairment test for all reporting units, and no impairment was recognized as a result of the assessment.

The goodwill impairment test consists of a comparison of the fair value of a reporting unit with its carrying value, including the goodwill allocated to the reporting units.

If the carrying value of a reporting unit exceeds its fair value, the Company will recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit.

The Company estimates the fair value of its reporting units using a weighting of fair values derived from an income approach and a market approach.

We identified the estimate of the fair value of the Europe and Asia-Pacific reporting units during the goodwill impairment assessments as of the interim testing date of April 5, 2020, and as of the annual measurement date, as a critical audit matter.

The principal considerations for our determination are:

(i) certain of the Company’s reporting units had relatively lower excess fair value over book value and, as such, are more sensitive to management’s estimates, (ii) inherent uncertainties exist related to the Company’s forecasts and how various political, economic and other uncertainties could affect the Company’s forecasted assumptions of revenue, gross margin, and earnings included in the income approach, and (iii) the general downward trend in certain market multiples of guideline public companies as of the 2019 impairment testing date which resulted in a lower valuation based on the market approach analysis.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

(i) these reporting units had relatively lower excess fair value over book value and, therefore, the fair value estimates were sensitive to changes in the significant assumptions such as revenue, gross margin, earnings, terminal growth rate, and the discount rate included in the income approach, (ii) the greater than usual volatility and uncertainty underlying the market data used in the market approach due to market fluctuations during the COVID-19 pandemic, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

These assumptions were especially challenging to test and required significant auditor judgment due to the inherent uncertainties related to the severity and duration of the COVID-19 pandemic.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of controls related to management’s forecasting process, including controls over the data, inputs, and assumptions utilized to determine the fair value of the Company’s reporting units, including revenue growth rates, gross margin, and earnings.

Evaluating the reasonableness of assumptions used in management’s income approach analysis by comparing the forecasts to:

(i) historical results, and (ii) Company’s internal communications to management and the Board of Directors.

Reconciling the estimated fair value of the Company’s reporting units, as determined using the market and the income approaches, to the indicated market capitalization of the Company as a whole.

• Testing the design and operating effectiveness of controls related to management’s forecasting process, including controls over management’s review of the data and significant assumptions utilized to determine fair value of the Company’s reporting units, including revenue, gross margin, and earnings.

• Evaluating the reasonableness of the significant assumptions used in management’s income approach analysis by comparing the forecasts of revenues, gross margins, and earnings to historical results and the Company’s projected budget, including the effect of COVID-19.

• Testing the reconciliation of the estimated fair value of the Company’s reporting units to the indicated market capitalization of the Company as a whole.

• Utilizing personnel with specialized knowledge and skill in valuation to assist in:

(i) testing the underlying source information utilized in the market approach, (ii) assessing the appropriateness and relative weighting of valuation methods, (iii) testing the mathematical accuracy of the Company’s calculations, (iv) evaluating the reasonableness of the discount rate used in the income approach, and (v) evaluating the reasonableness of certain assumptions used in the market approach.

/s/ BDO USA, LLP

(i) assessing the appropriateness and relative weighting of the income and market approaches, (ii) testing the mathematical accuracy of the Company’s calculations, (iii) evaluating the reasonableness of the discount rate and terminal growth rate used in the income approach, (iv) assessing the reasonableness of certain market data used in the market approach, and (v) evaluating the reasonableness of the market capitalization reconciliation.

We are uncertain as to the year we began serving consecutively as the auditor of the Company's financial statements;

however, we are aware that we have been the Company's auditor consecutively since at least 1981.

/s/ BDO USA, LLP

Atlanta, Georgia

February 26, 2020

March 3, 2021

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

We have audited Interface, Inc.

and Subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2019, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2019 and December 30, 2018, the related consolidated statements of operations, comprehensive income, and cash flows for each of the three years in the period ended December 29, 2019, and the related notes and schedules and our report dated February 26, 2020 expressed an unqualified opinion thereon.

and Subsidiaries’ (the “Company’s”) internal control over financial reporting as of January 3, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of January 3, 2021 and December 29, 2019, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 3, 2021, and the related notes and schedule and our report dated March 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

15 unchanged sentences

Atlanta, Georgia

February 26, 2020

March 3, 2021

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data