INTERFACE INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) FISCAL YEAR 2020 2019 2018 Net sales $ 1,103,262 $ 1,343,029 $ 1,179,573 Cost of sales 692,688 810,062 749,690 Gross profit on sales 410,574 532,967 429,883 Selling, general and administrative expenses 333,229 389,117 332,975 Restructuring, asset impairment and other charges ( 4,626 ) 12,947 20,529 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 (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 Diluted weighted average common shares outstanding 58,547 58,948 59,566 See accompanying notes to consolidated financial statements. 44 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) FISCAL YEAR 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 gain (loss) ( 2,027 ) ( 5,489 ) 422 Pension liability adjustment ( 12,588 ) ( 13,090 ) 12,944 Comprehensive income (loss) $ ( 33,736 ) $ 48,969 $ 41,075 See accompanying notes to consolidated financial statements. 45 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except par values) END OF FISCAL YEAR 2020 2019 ASSETS Current assets Cash and cash equivalents $ 103,053 $ 81,301 Accounts receivable, net 139,869 177,482 Inventories, net 228,725 253,584 Prepaid expenses and other current assets 23,747 35,768 Total current assets 495,394 548,135 Property, plant and equipment, net 359,036 324,585 Operating lease right-of-use assets 98,013 107,044 Deferred tax asset 18,175 19,683 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 Current liabilities Accounts payable $ 58,687 $ 75,687 Accrued expenses 105,739 140,652 Current portion of operating lease liabilities 13,555 15,914 Current portion of long-term debt 15,319 31,022 Total current liabilities 193,300 263,275 Long-term debt 561,251 565,178 Operating lease liabilities 86,468 91,829 Deferred income taxes 34,307 35,550 Other long-term liabilities 104,147 99,015 Total liabilities 979,473 1,054,847 Commitments and contingencies Shareholders’ equity 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 5,865 5,842 Additional paid-in capital 247,920 250,306 Retained earnings 208,562 286,056 Accumulated other comprehensive loss – foreign currency translation ( 60,331 ) ( 113,139 ) Accumulated other comprehensive loss – cash flow hedge ( 6,190 ) ( 4,163 ) Accumulated other comprehensive loss – pension liability ( 69,288 ) ( 56,700 ) Total shareholders’ equity 326,538 368,202 Total liabilities and shareholders’ equity $ 1,306,011 $ 1,423,049 See accompanying notes to consolidated financial statements. 46 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) FISCAL YEAR 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 (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 benefit — — ( 6,739 ) Bad debt expense 3,843 1,206 222 Deferred income taxes and other ( 20,794 ) ( 9,497 ) ( 11,709 ) Amortization of acquired intangible assets 5,457 5,903 5,387 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 ) Accounts payable and accrued expenses ( 60,903 ) 19,381 9,936 Cash provided by operating activities 119,070 141,768 91,767 INVESTING ACTIVITIES: Capital expenditures ( 62,949 ) ( 74,647 ) ( 54,857 ) 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 ) FINANCING ACTIVITIES: Revolving loan borrowing 110,000 90,000 17,000 Revolving loan repayments ( 131,024 ) ( 87,664 ) ( 64,504 ) Term loan borrowing — — 462,847 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 ) Dividends paid ( 5,565 ) ( 15,358 ) ( 15,471 ) Tax withholding payments for share-based compensation ( 1,511 ) ( 3,278 ) ( 1,187 ) Debt issuance costs ( 7,896 ) — ( 8,806 ) Payments for debt extinguishment costs ( 660 ) — — Proceeds from issuance of common stock 93 60 294 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 ) Effect of exchange rate changes on cash 7,086 ( 557 ) ( 3,656 ) CASH AND CASH EQUIVALENTS: Net increase (decrease) 21,752 312 ( 6,048 ) Balance, beginning of year 81,301 80,989 87,037 Balance, end of year $ 103,053 $ 81,301 $ 80,989 See accompanying notes to consolidated financial statements. 47 Table of Contents INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Company is a recognized leader in the worldwide commercial interiors market, offering modular carpet, luxury vinyl tile (“LVT”) and rubber flooring products. 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. The Company also offers resilient rubber flooring since its acquisition of nora Holding GmbH on August 7, 2018. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All of our subsidiaries are wholly-owned, and we are not a party to any joint venture, partnership or other variable interest entity that would potentially qualify for consolidation. All material intercompany accounts and transactions are eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Examples include provisions for returns, bad debts, product claims reserves, rebates, inventory obsolescence and the length of product life cycles, accruals associated with restructuring activities, income tax exposures and valuation allowances, environmental liabilities, and the carrying value of goodwill and property and equipment. 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. 48 Table of Contents 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 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: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. Revenue Recognized from Contracts with Customers Contracts with customers typically take the form of invoices for purchase of materials from the Company. Customer payment terms vary by region and are typically less than 60 days. The performance obligation is the delivery of these materials to the customer’s control. During 2020, 2019 and 2018, approximately 98 %, 98 % and 97 % of the Company’s total revenue, respectively, was produced from the sale of carpet, resilient flooring, rubber flooring, and related products (TacTiles installation materials, etc.) and the revenue from sales of these products is recognized upon shipment, or in certain cases, upon delivery to the customer. The transaction price for these sales is readily identifiable. The remaining revenue for 2020, 2019 and 2018 of 2 %, 2 % and 3 %, respectively, was generated from the installation of carpet and other flooring-related material. The remaining revenue generated by the Company is for contracts to sell and install carpet and related products at customer locations. For projects underway, the Company recognized installation revenue over time as the customer simultaneously received and consumed the benefit of the services. The installation of the carpet and related products is a separate performance obligation from the sale of carpet. The majority of these projects are completed within 5 days of the start of installation. The transaction price for these sale and installation contracts is readily determinable between flooring material and installation services and is specifically identified in the contract with the customer. The Company has utilized the portfolio approach to its contracts with customers, as its contracts with customers have similar characteristics and it is reasonable to expect that the effects from applying this approach are not materially different from applying the accounting standard to individual contracts. 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 within revenues. The Company records such taxes collected as a liability on our consolidated balance sheets. 49 Table of Contents Performance Obligations As noted above, the Company primarily generates revenue through the sale of flooring material to end users either upon shipment or upon arrival of the product at its destination. In these instances, there typically is no other obligation to the customers other than the delivery of flooring material with the exception of warranty. The Company does offer a warranty to its customers which guarantees certain on-floor performance characteristics and warrants against manufacturing defects. The warranty is not a service warranty, and there is no ability to separate the warranty obligation from the sale of the flooring or purchase them separately. The Company’s incidence of warranty claims is extremely low, with less than 0.5 % of revenue in claims on an annual basis for the last three fiscal years. Given the nature of the warranty as well as the financial impact, the Company has determined that there is no need to identify this warranty as a separate performance obligation and the Company will continue to account for warranty on an accrual basis. 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. 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. The Company’s largest installation customers are retail and corporate customers, and these are on a project-by-project basis and are short-term installations. The Company has evaluated these projects at the end of the reporting period and recorded revenue in accordance with the accounting standards for projects which were underway as of the end of 2020. Costs to Obtain Contracts The Company pays sales commissions to many of its sales personnel based upon their selling activity. These are direct costs associated with obtaining the contracts and are expensed as the revenue is earned. As these commissions become payable upon shipment (or in certain cases delivery) of product, the commission is earned as the revenue is recognized. There are no other material costs the Company incurs as part of obtaining the sales contract. Shipping and Handling Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations. Research and Development 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. Cash, Cash Equivalents and Short-Term Investments Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term investments. 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 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. 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. 50 Table of Contents Inventories Inventories are carried at the lower of cost (standards approximating the first-in, first-out method) or net realizable value. Costs included in inventories are based on invoiced costs and/or production costs, as applicable. Included in production costs are material, direct labor and allocated overhead. The Company writes down inventories for the difference between the carrying value of the inventories and their estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required. Management estimates its reserves for inventory obsolescence by continuously examining its inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for the Company’s products, and current economic conditions. While management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and the Company could experience additional inventory write-downs in the future. Rebates The Company has agreements to receive cash consideration from certain of its vendors, including rebates and cooperative marketing reimbursements. The amounts received from its vendors are generally presumed to be a reduction of the prices the Company pays for their products and, therefore, such amounts are reflected as either a reduction of cost of sales in the accompanying consolidated statements of operations, or, if the product inventory is still on hand at the reporting date, it is reflected as a reduction of “Inventories” on the accompanying consolidated balance sheets. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. The Company evaluates the likelihood of reaching purchase thresholds using past experience and current year forecasts. When rebates can be reasonably estimated and receipt becomes probable, the Company records a portion of the rebate as the Company makes progress towards the purchase threshold. 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. Leases 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 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 Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the following estimated useful lives: buildings and improvements – ten to forty years ; and furniture and equipment – three to twelve years . Interest costs for the construction/development of certain long-term assets are capitalized and amortized over the related assets’ estimated useful lives. The Company capitalized net interest costs on qualifying expenditures of approximately $ 1.9 million, $ 2.1 million, and $ 0.7 million for the fiscal years 2020, 2019 and 2018, respectively. Depreciation expense amounted to approximately $ 42.4 million, $ 41.5 million, and $ 37.6 million for the years 2020, 2019, and 2018 respectively. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred. 51 Table of Contents 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. 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 The Company typically provides limited warranties with respect to certain attributes of its carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years , depending on the particular carpet product and the environment in which it is to be installed. Similar limited warranties are provided on certain attributes of its rubber and LVT products, typically for a period of 5 to 15 years. The Company typically warrants that services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product. 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 $ 3.2 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. Income Taxes 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. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date. The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future. This requires us to use estimates and make assumptions regarding significant future events such as the taxability of entities operating in the various taxing jurisdictions. For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results. For further information, see Note 17 entitled “Income Taxes.” Fair Values of Financial Instruments Fair values of cash and cash equivalents and short-term debt approximate cost due to the short period of time to maturity. 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. 52 Table of Contents Translation of Foreign Currencies The financial position and results of operations of the Company’s foreign subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each year-end. Income and expense items are translated at average exchange rates for the year. The resulting translation adjustments are recorded in the foreign currency translation adjustment account. In the event of a divestiture of a foreign subsidiary, the related foreign currency translation results are reversed from equity to income. Foreign exchange translation gains (losses) were $ 52.8 million, $( 11.7 ) million, and $( 22.5 ) million for the years 2020, 2019 and 2018, respectively. Earnings per Share Basic earnings per share is computed based on the average number of common shares outstanding. 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 The Company has stock-based employee compensation plans, which are described more fully in Note 14 entitled “Shareholders' Equity.” The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. However, there were no stock options granted in 2020, 2019 or 2018. The Company recognizes expense related to its restricted stock and performance share grants based on the grant date fair value of the shares awarded, as determined by its market price at date of grant. Derivative Financial Instruments Derivatives are recognized on the balance sheet at fair value. 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 Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While the Company believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of the Company’s plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in the Company’s salary continuation plan and foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. 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. 53 Table of Contents 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 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 Fiscal Year The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest December 31. 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. 54 Table of Contents NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements On December 30, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Credit Losses . This standard requires a financial asset (including trade receivables) to be presented at the net amount expected to be collected through the use of valuation allowances for credit losses. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The Company adopted the new standard using a modified retrospective approach with no cumulative-effect adjustment to retained earnings to recognize expected credit losses on trade accounts receivable. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements. On December 30, 2019, the Company adopted 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 adoption of this standard did not have a material impact to the Company’s consolidated financial statements. On December 30, 2019, the Company adopted ASU 2018-15, “ Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement .” This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement service contract with the guidance to capitalize implementation costs of internal use software. The ASU also requires that the costs for implementation activities during the application development phase be capitalized in a hosting arrangement service contract, and costs during the preliminary and post implementation phase are expensed. The Company adopted this standard, which will be applied on a prospective basis, with no material impact to the Company’s consolidated financial statements. 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 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. 55 Table of Contents NOTE 3 – REVENUE RECOGNITION 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 fiscal years 2020, 2019 and 2018, revenue from the Company’s customers is broken down by geography as follows: Fiscal Year 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 % 56 Table of Contents 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. 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 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 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. 57 Table of Contents NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure estimated fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under applicable accounting standards are described below: 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; • quoted prices for identical or similar assets in inactive markets; • inputs other than quoted prices that are observable for the asset; and • inputs that are derived principally or corroborated by observable data by correlation or other. 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 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 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. 58 Table of Contents NOTE 6 – INVENTORIES Inventories are summarized as follows: End of Fiscal Year 2020 2019 (in thousands) Finished goods $ 152,836 $ 184,336 Work-in-process 17,109 13,152 Raw materials 58,780 56,096 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. 59 Table of Contents NOTE 7 – PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: End of Fiscal Year 2020 2019 (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) ( 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. 60 Table of Contents NOTE 8 – ACCRUED EXPENSES Accrued expenses are summarized as follows: End of Fiscal Year 2020 2019 (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 61 Table of Contents NOTE 9 – LONG-TERM DEBT Long-term debt consisted of the following: January 3, 2021 December 29, 2019 Outstanding Principal Interest Rate (1) Outstanding Principal Interest Rate (1) (in thousands) (in thousands) Syndicated Credit Facility: 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 Less: Unamortized debt issue costs ( 8,645 ) ( 6,316 ) Total debt, net 576,570 596,200 Less: 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. 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 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. 62 Table of Contents 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; and • 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 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. Covenants The Facility 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: • create or incur liens on assets; • make acquisitions of or investments in businesses (in excess of certain specified amounts); • engage in any material line of business substantially different from the Company’s current lines of business; • incur indebtedness or contingent obligations; • sell or dispose of assets (in excess of certain specified amounts); • pay dividends or repurchase the Company’s stock (in excess of certain specified amounts); • repay other indebtedness prior to maturity unless the Company meets certain conditions; and • enter into sale and leaseback transactions. 63 Table of Contents 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 Secured Net Leverage Ratio: Must be no greater than 3.00 :1.00. • Consolidated Interest Coverage Ratio: Must be no less than 2.25 :1.00. Events of Default If the Company breaches or fails to perform any of the affirmative or negative covenants under the Facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain subsidiaries, or if the Company breaches or fails to perform any covenant or agreement contained in any instrument relating to any of the Company’s other indebtedness exceeding $ 20 million), 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 lenders’ Administrative Agent may, and upon the written request of a specified percentage of the lender group shall: • declare all commitments of the lenders under the facility terminated; • declare all amounts outstanding or accrued thereunder immediately due and payable; and • exercise other rights and remedies available to them under the agreement and applicable law. Collateral 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 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. The amortization payments are due on the last day of the calendar quarter. The Company is currently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future. 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. 64 Table of Contents Redemption 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. Covenants 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; and • 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 January 3, 2021 and December 29, 2019, there were no borrowings outstanding under these lines of credit. Borrowing Costs 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. 65 Table of Contents 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 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 2022 15,319 2023 15,319 2024 15,319 2025 223,939 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. 66 Table of Contents NOTE 10 – DERIVATIVE INSTRUMENTS Interest Rate Risk Management In the third quarter of 2017 and the first quarter of 2019, the Company entered into interest rate swap transactions in notional amounts of $ 100 million and $ 150 million, respectively, to fix the variable interest rate on a portion of its term loan borrowing 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 Our nora operations, from time to time, are party to currency forward contracts designed to hedge the cash flow risk of intercompany sales from the manufacturing facility in Europe to the Americas. The Company’s objective and strategy with respect to these currency forward contracts is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to receipt of payment on intercompany sales. The Company is meeting its objective by hedging the risk of changes in its cash flows (intercompany payments for inventory) attributable to changes in the U.S. dollar/Euro exchange rate (the “hedged risk”). Changes in fair value attributable to components other than exchange rates will be excluded from the assessment of effectiveness and amortized to earnings on a straight-line basis. 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 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. 67 Table of Contents 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: 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 — $ 37 $ — The table below sets forth the fair value of derivative instruments as of December 29, 2019: Asset Derivatives as of December 29, 2019 Liability Derivatives as of December 29, 2019 Balance Sheet Location Fair Value Balance Sheet Location Fair Value (in thousands) Derivative instruments designated as hedging instruments: Interest rate swap contracts Other current assets $ — Accrued expenses $ 5,801 Derivative instruments not designated as hedging instruments: Foreign currency options Other current assets 251 Accrued expenses — $ 251 $ 5,801 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. 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 loss, net of tax: Fiscal Year 2020 2019 2018 (in thousands) Foreign currency contracts gain (loss) $ — $ 468 $ ( 468 ) 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.” 68 Table of Contents The following table summarizes gains and losses on derivatives not designated as hedging instruments within the consolidated statements of operations: Fiscal Year Statement of Operations Location 2020 2019 2018 (in thousands) Foreign currency options gain (loss) Other expense $ 13 $ ( 627 ) $ 992 69 Table of Contents NOTE 11 – LEASES General 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. We have operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. Our leases have terms ranging from 1 to 20 years, some of which may include options to extend the lease term for up to 5 years, and certain leases may include an option to terminate the lease. Our lease terms may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option. 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) Operating lease right-of-use assets $ 98,013 $ 107,044 Current portion of operating lease liabilities $ 13,555 $ 15,914 Operating lease liabilities 86,468 91,829 Total operating lease liabilities $ 100,023 $ 107,743 Property, plant and equipment, net $ 6,138 $ 5,007 Accrued expenses $ 1,496 $ 1,489 Other long-term liabilities 2,688 1,673 Total finance lease liabilities $ 4,184 $ 3,162 Lease Costs Fiscal Year 2020 2019 (in thousands) Finance lease cost: Amortization of right-of-use assets $ 1,251 $ 890 Interest on lease liabilities 86 51 Operating lease cost 25,213 24,246 Short-term lease cost 525 2,057 Variable lease cost 3,970 3,665 Total lease cost $ 31,045 $ 30,909 70 Table of Contents Other Supplemental Information Fiscal Year 2020 2019 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 86 $ 51 Operating cash flows from operating leases 22,206 22,597 Financing cash flows from finance leases 1,727 1,255 Right-of-use assets obtained in exchange for new finance lease liabilities 2,546 2,240 Right-of-use assets obtained in exchange for new operating lease liabilities 2,504 12,655 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 2020 2019 Weighted-average remaining lease term – finance leases (in years) 3.35 2.76 Weighted-average remaining lease term – operating leases (in years) 10.61 10.60 Weighted-average discount rate – finance leases 2.64 % 2.06 % Weighted-average discount rate – operating leases 5.98 % 5.86 % Maturity Analysis 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 Less: Present value discount ( 38,784 ) ( 207 ) Total lease liability $ 100,023 $ 4,184 Practical Expedients and Policy Elections The Company elected the package of practical expedients permitted under the transition guidance of the new lease standard, which, among other things, allows us to carry forward the historical lease classification and not reassess any initial direct costs for existing leases. 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. 71 Table of Contents 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 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, including the ongoing impact of the COVID-19 pandemic in 2020. 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 annual impairment testing. 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. 72 Table of Contents 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: Goodwill (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. 73 Table of Contents NOTE 13 – PREFERRED STOCK The Company is authorized to designate and issue up to 5,000,000 shares of $ 1.00 par value preferred stock in one or more series and to determine the rights and preferences of each series, to the extent permitted by the Articles of Incorporation, and to fix the terms of such preferred stock without any vote or action by the shareholders. The issuance of any series of preferred stock may have an adverse effect on the rights of holders of common stock and could decrease the amount of earnings and assets available for distribution to holders of common stock. 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 January 3, 2021 and December 29, 2019, there were no shares of preferred stock issued. 74 Table of Contents NOTE 14 – SHAREHOLDERS’ EQUITY The Company is authorized to issue 120 million shares of $ 0.10 par value Common Stock. The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE. The Company paid cash dividends totaling $ 0.095 per share in 2020, $ 0.26 per share in 2019, and $ 0.26 per share in 2018, to each share of Common Stock. 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 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 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 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. 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 fiscal years 2020, 2019, and 2018: SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands) Balance, at December 29, 2019 58,416 $ 5,842 $ 250,306 $ 286,056 $ ( 56,700 ) $ ( 113,139 ) $ ( 4,163 ) Net loss — — — ( 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 ) — — — — Pension liability adjustment — — — — ( 12,588 ) — — Foreign currency translation adjustment — — — — — 52,808 — 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 ) 75 Table of Contents SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands) Balance, at December 30, 2018 59,508 $ 5,951 $ 270,269 $ 222,214 $ ( 43,610 ) $ ( 101,487 ) $ 1,326 Net income — — — 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 — — — — Share repurchases ( 1,556 ) ( 156 ) ( 24,998 ) — — — — Pension liability adjustment — — — — ( 13,090 ) — — Foreign currency translation adjustment — — — — — ( 11,652 ) — 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 ) SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands) 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 — — — — Share repurchases ( 615 ) ( 61 ) ( 14,424 ) — — — — Pension liability adjustment — — — — 12,944 — — Foreign currency translation adjustment — — — — — ( 22,544 ) — 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. 76 Table of Contents Stock Options 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. The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant. 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 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. That expense will be recognized over the period that the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award. The grant date fair value for options and similar instruments will be estimated using option pricing models. Under accounting standards, the Company is required to select a valuation technique or option pricing model. The Company uses the Black-Scholes model. 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 Granted — — Exercised ( 7,500 ) 12.43 Forfeited or canceled ( 20,000 ) 12.43 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 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. Compensation expense related to awards of restricted stock was $ 1.3 million, $ 3.3 million and $ 4.1 million for 2020, 2019 and 2018, respectively. These grants are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized. 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. 77 Table of Contents The following table summarizes restricted stock outstanding as of January 3, 2021, as well as activity during the previous fiscal year: Shares Weighted Average Grant Date Fair Value 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 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. 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 (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 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 Date Fair Value Outstanding at December 29, 2019 512,000 $ 19.71 Granted 263,700 15.36 Vested ( 164,300 ) 19.74 Forfeited or canceled ( 206,100 ) 19.58 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. 78 Table of Contents NOTE 15 – EARNINGS PER SHARE The Company calculates basic and diluted earnings per common share using the two-class method. Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) by the weighted average common shares outstanding, including participating securities outstanding, during the period as depicted below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings. Income attributable to non-controlling interest is included in the computation of basic and diluted earnings per share, where applicable. The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of common shares outstanding in our basic and diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following tables show distributed and undistributed earnings: Fiscal Year Earnings (Loss) Per Share 2020 2019 2018 Basic earnings (loss) per share: Distributed earnings $ 0.10 $ 0.26 $ 0.26 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 (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: Fiscal Year 2020 2019 2018 (in millions) Net income attributable to participating securities $ — $ 0.6 $ 0.5 The weighted average shares for basic and diluted EPS were as follows: Fiscal Year 2020 2019 2018 (in thousands) Weighted average shares outstanding 58,110 58,475 58,995 Participating securities 437 468 549 Shares for basic earnings per share 58,547 58,943 59,544 Dilutive effect of stock options — 5 22 Shares for diluted earnings per share 58,547 58,948 59,566 For all periods presented, there were no stock options or participating securities excluded from the determination of diluted EPS. 79 Table of Contents NOTE 16 – RESTRUCTURING AND OTHER CHARGES 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 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 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 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. 80 Table of Contents 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. The charge was comprised of severance expenses (approximately $ 10.8 million), impairment of assets (approximately $ 8.6 million) and other items (approximately $ 1.1 million). 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 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. 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. 81 Table of Contents NOTE 17 – INCOME TAXES Income (loss) before income taxes consisted of the following: Fiscal Year 2020 2019 2018 (in thousands) U.S. operations $ ( 7,104 ) $ 46,463 $ 35,728 Foreign operations ( 72,316 ) 55,353 19,263 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: Fiscal Year 2020 2019 2018 (in thousands) Current expense (benefit): 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 (benefit) $ ( 7,491 ) $ 22,616 $ 4,738 82 Table of Contents 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 all periods presented to the Company’s actual income tax expense: Fiscal Year 2020 2019 2018 (in thousands) Income taxes at U.S. federal statutory rate $ ( 16,678 ) $ 21,381 $ 11,548 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax effect ( 2,033 ) 2,321 2,228 Non-deductible business expenses 1,792 933 1,352 Non-deductible employee compensation ( 210 ) 1,453 2,566 Tax effects of Company owned life insurance ( 898 ) ( 636 ) 235 Tax effects of Tax Act: One-time transition tax on foreign earnings — — ( 5,000 ) Remeasurement of net Deferred Tax Asset — — ( 1,739 ) Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested 748 ( 183 ) 61 Foreign and U.S. tax effects attributable to foreign operations ( 11,991 ) 783 ( 2,226 ) 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 ) 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. In accordance with SEC Staff Bulletin No. 118 (“SAB 118”), the Company recorded certain provisional estimates for the impact of the Tax Act as of December 31, 2017. Under the transitional provisions of SAB 118, the Company had a one-year measurement period to complete the accounting for the initial tax effects of the Tax Act. 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. 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 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 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. 83 Table of Contents The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows: End of Fiscal Year 2020 2019 (in thousands) Deferred tax assets Lease liability $ 28,094 $ 29,782 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 Other 50 71 Deferred tax asset, gross 84,659 75,139 Valuation allowance ( 13,919 ) ( 971 ) Deferred tax asset, net $ 70,740 $ 74,168 Deferred tax liabilities Property and equipment $ 27,322 $ 23,770 Intangible assets 30,745 33,760 Lease asset 27,268 29,301 Foreign currency 606 3,026 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 January 3, 2021. Beginning in 2018, the Tax Act included two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. 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. 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. 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. 84 Table of Contents 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 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. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable. The Company’s federal income tax returns are subject to examination for the years 2017 to the present. 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 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 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: Fiscal Year 2020 2019 2018 (in thousands) Balance at beginning of year $ 25,486 $ 28,143 $ 29,221 Increases related to tax positions taken during the current year 271 318 671 Increases related to tax positions taken during the prior years 536 1,093 180 Decreases related to tax positions taken during the prior years ( 673 ) ( 2,809 ) — Decreases related to lapse of applicable statute of limitations ( 14,992 ) ( 1,266 ) ( 1,861 ) Changes due to foreign currency translation 171 7 ( 68 ) Balance at end of year $ 10,799 $ 25,486 $ 28,143 85 Table of Contents NOTE 18 – COMMITMENTS AND CONTINGENCIES From time to time, the Company is a party to legal proceedings, whether arising in the ordinary course of business or otherwise. Some of the proceedings the Company is involved in are summarized below. SEC 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 On January 19, 2020, the Company’s Board of Directors voted to terminate for cause the employment of Jay D. Gould, then President and Chief Executive Officer, effective immediately, for violations of the Company’s working environment policies. On February 14, 2020, Mr. Gould filed a lawsuit against the Company in the United States District Court of the Northern District of Georgia, Gould v. Interface, Inc. , Case No. 1:20-cv-00695. In his lawsuit, Mr. Gould asserts several claims against the Company in connection with his termination, including that the termination was a wrongful retaliation against Mr. Gould and breached his employment contract with the Company, that public statements made by the Company in connection with his termination defamed Mr. Gould (two counts) and that the Company’s investigation into Mr. 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 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. et al. (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. 86 Table of Contents NOTE 19 – EMPLOYEE BENEFIT PLANS Defined Contribution and Deferred Compensation Plans The Company has a 401(k) retirement investment plan (“401(k) Plan”), which is open to all eligible U.S. employees with at least six months of service. The 401(k) Plan calls for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The Company may, at its discretion, make additional contributions to the 401(k) Plan based on the attainment of certain performance targets by its subsidiaries. The Company’s matching contributions are funded bi-monthly and totaled approximately $ 1.6 million, $ 3.3 million, and $ 3.2 million for the years 2020, 2019, and 2018, respectively. No discretionary contributions were made in 2020, 2019, or 2018. Under the Company’s nonqualified savings plans (“NSPs”), the Company provides eligible employees the opportunity to enter into agreements for the deferral of a specified percentage of their compensation, as defined in the NSPs. The NSPs call for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The obligations of the Company under such agreements to pay the deferred compensation in the future in accordance with the terms of the NSPs are unsecured general obligations of the Company. Participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company has established a rabbi trust to hold, invest and reinvest deferrals and contributions under the NSPs. 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 $ 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 $ 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 The Company has trusteed defined benefit retirement plans which cover many of its European employees. The benefits under these defined benefit retirement plans are generally based on years of service and the employee’s average monthly compensation. In connection with the nora acquisition on August 7, 2018, the Company acquired an additional defined benefit plan, which covers certain employees in Germany (the “nora Plan”). The nora plan has no plan assets. The Company uses a year-end measurement date for the plans, which is the closest practical date to the Company’s fiscal year end. 87 Table of Contents 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 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. The Dutch plan is financed by assets held in an insurance contract. The guarantee provision included in the insurance contract, that existed to fund any shortfall between the fair value of plan investments and the benefit obligation, expired on December 31, 2019. 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 year 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 year 2019. As discussed above, the Company still has an obligation to pay vested benefits in the frozen Dutch plan. 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 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. 88 Table of Contents 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: Fiscal Year 2020 2019 (in thousands) Change in benefit obligation: 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 ) Actuarial loss (gain) 31,618 37,409 Curtailment gain — ( 2,421 ) Member contributions — 221 Currency translation adjustment 24,917 ( 107 ) Benefit obligation, end of year $ 364,443 $ 314,841 Change in plan assets: Plan assets, beginning of year $ 266,450 $ 249,313 Actual return on assets 25,239 24,999 Company contributions 4,451 3,954 Benefits paid ( 12,041 ) ( 13,034 ) Currency translation adjustment 19,432 1,218 Plan assets, end of year $ 303,531 $ 266,450 Reconciliation to balance sheet Funded status benefit asset (liability) $ ( 60,912 ) $ ( 48,391 ) Amounts recognized in accumulated other comprehensive income, after tax: Unrecognized actuarial loss $ 58,257 $ 47,561 Unamortized prior service credits — — Total amount recognized $ 58,257 $ 47,561 Accumulated benefit obligation $ 364,443 $ 314,841 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, 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 January 3, 2021 and December 29, 2019. 89 Table of Contents End of Fiscal Year 2020 2019 (in thousands) UK Plan Projected benefit obligation $ 198,215 $ 170,958 Accumulated benefit obligation 198,215 170,958 Plan assets 193,991 174,156 Dutch Plan Projected benefit obligation $ 116,379 $ 100,996 Accumulated benefit obligation 116,379 100,996 Plan assets 109,540 92,294 nora Plan Projected benefit obligation $ 49,849 $ 42,887 Accumulated benefit obligation 49,849 42,887 Plan assets — — Fiscal Year 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 Expected return on plan assets ( 4,256 ) ( 5,561 ) ( 6,234 ) Amortization of prior service cost 106 63 ( 27 ) Amortization of net actuarial (gains) losses 1,549 991 1,394 Curtailment gain — ( 453 ) — 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. Fiscal Year 2020 2019 2018 Weighted average assumptions used to determine net periodic benefit cost: Discount rate 1.0 % 1.9 % 1.9 % Expected return on plan assets 1.2 % 2.1 % 1.8 % Rate of compensation — % 1.75 % 1.75 % Weighted average assumptions used to determine benefit obligations: Discount rate 1.0 % 1.7 % 2.5 % Rate of compensation — % 1.75 % 1.75 % 90 Table of Contents The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. 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. 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 January 3, 2021 or December 29, 2019. Dutch Plan Assets and Indexation Benefit As is common in Dutch pension plans, the Dutch plan includes a provision for discretionary benefit increases termed “indexation.” The indexation benefit is meant to adjust pension benefits for cost-of-living increases, similar to U.S. consumer price index-based cost-of-living adjustments for U.S. retirement plans. The indexation benefit is not guaranteed, and is only provided for and paid out if sufficient assets are available due to favorable asset returns. Both the vested benefit amounts as well as amounts related to the discretionary indexation benefits under the Dutch plan are paid pursuant to an insurance contract with a private insurer (the “Contract”). The Plan itself is financed by investment assets held within the Contract. Prior to December 31, 2019, the Contract guaranteed payment of vested benefits, regardless of whether Plan assets held through the Contract were ultimately sufficient to pay vested amounts, and also provided for payment of the indexation amount on a contingent basis if the actual return on Dutch plan assets were sufficient to pay it. This type of insurance arrangement is common in The Netherlands, although not necessarily common in other jurisdictions. 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. 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. 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: Fiscal Year 2021 2020 2019 Asset Category Target Allocation Percentage of Plan Assets at Year End Equity securities 1 % — 3 % 3 % 3 % Debt and debt securities 50 % — 60 % 60 % 61 % Short-term investments 1 % — 2 % — % 1 % Other investments 35 % — 40 % 37 % 35 % 100 % 100 % 100 % 91 Table of Contents 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. As required by accounting standards, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 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 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: End of Fiscal Year 2020 Asset Category Level 1 Level 2 Level 3 (in thousands) Equity securities $ 9,113 $ — $ — Debt and debt securities 60,699 95,004 25,927 Short-term investments (1) 1,092 — — Other investments (2) — — 111,696 $ 70,904 $ 95,004 $ 137,623 End of Fiscal Year 2019 Asset Category Level 1 Level 2 Level 3 (in thousands) Equity securities $ 8,143 $ — $ — Debt and debt securities 54,686 87,047 19,996 Short-term Investments (1) 1,322 — — Other Investments (2) — — 95,256 $ 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. 92 Table of Contents 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: Fiscal Year 2020 2019 (in thousands) Balance of level 3 assets, beginning of year $ 115,252 $ 109,254 Actual return on plan assets (1) 6,767 5,463 Purchases, sales and settlements, net 437 663 Assets transferred into level 3 3,934 2,101 Translation adjustment 11,233 ( 2,229 ) 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: Fiscal Year Expected Payments (in thousands) 2021 $ 12,038 2022 12,097 2023 12,351 2024 12,595 2025 12,764 2026-2030 66,169 Domestic Defined Benefit Plan The Company maintains a domestic non-qualified salary continuation plan (“SCP”), which is designed to induce selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit programs. The SCP entitles participants to: (i) retirement benefits upon normal retirement at age 65 (or early retirement as early as age 55 ) after completing at least 15 years of service with the Company (unless otherwise provided in the SCP), payable for the remainder of their lives (or, if elected by a participant, a reduced benefit is payable for the remainder of the participant’s life and any surviving spouse’s life) and in no event less than 10 years under the death benefit feature; (ii) disability benefits payable for the period of any total disability; and (iii) death benefits payable to the designated beneficiary of the participant for a period of up to 10 years. Benefits are determined according to one of three formulas contained in the SCP, and the SCP is administered by the Compensation Committee of the Company’s Board of Directors, which has full discretion in choosing participants and the benefit formula applicable to each. The Company’s obligations under the SCP are currently unfunded (although the Company uses insurance instruments to hedge its exposure thereunder). The Company is required to contribute the present value of its obligations thereunder to an irrevocable grantor trust in the event of a change in control as defined in the SCP. The Company uses a year-end measurement date for the domestic SCP. 93 Table of Contents The tables presented below set forth the required disclosures in accordance with applicable accounting standards, and amounts recognized in the consolidated financial statements related to the domestic SCP. There is no service cost component of the change in benefit obligation in 2020 and 2019 as there are no longer any active participants in the plan. Fiscal Year 2020 2019 (in thousands) Change in benefit obligation: Benefit obligation, beginning of year $ 31,740 $ 29,142 Interest cost 938 1,154 Benefits paid ( 2,030 ) ( 2,030 ) Actuarial loss (gain) 3,186 3,474 Benefit obligation, end of year $ 33,834 $ 31,740 The amounts recognized in the consolidated balance sheets are as follows: End of Fiscal Year 2020 2019 (in thousands) Current liabilities $ 2,030 $ 2,030 Non-current liabilities 31,804 29,710 Total benefit obligation $ 33,834 $ 31,740 The components of the amounts in accumulated other comprehensive income, after tax, are as follows: Fiscal Year 2020 2019 (in thousands) Unrecognized actuarial loss $ 11,031 $ 9,139 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; as such, the benefit obligations disclosed are also the benefit obligations in excess of the plan assets. The Company uses insurance instruments to help limit its exposure under the SCP. Fiscal Year 2020 2019 2018 (in thousands, except for assumptions) Assumptions used to determine net periodic benefit cost: Discount rate 3.05 % 4.10 % 3.50 % Rate of compensation — — — Assumptions used to determine benefit obligations: Discount rate 2.15 % 3.05 % 4.10 % Rate of compensation — — — Components of net periodic benefit cost: Service cost $ — $ — $ — Interest cost 938 1,154 1,082 Amortizations 558 375 464 Net periodic benefit cost $ 1,496 $ 1,529 $ 1,546 94 Table of Contents The changes in other comprehensive income during 2020 related to the SCP as a result of plan activity and valuation were approximately $ 1.9 million, after tax, primarily comprised of a net loss during the period of $ 2.3 million and amortization of loss of $ 0.4 million. During 2020, the Company contributed $ 2.0 million in the form of direct benefit payments for its domestic SCP. It is anticipated that future benefit payments for the SCP will be as follows: Fiscal Year Expected Payments (in thousands) 2021 $ 2,030 2022 2,030 2023 2,030 2024 2,030 2025 2,030 2026-2030 9,447 95 Table of Contents NOTE 20 – ACQUISITION OF NORA On June 14, 2018, the Company entered into a share purchase and transfer agreement to acquire the issued and outstanding shares of nora, nora’s outstanding third-party debt, and receivables related to nora’s shareholder loans. Nora is the holding company for a Germany-based manufacturer and multinational marketer of resilient floor coverings, including rubber flooring. In connection with the signing of the nora share purchase and transfer agreement, the Company entered into a derivative instrument to address the foreign currency risk associated with a portion of the nora purchase price. This option instrument did not qualify for hedge accounting, and the mark-to-market expense of $ 2.8 million to record the instrument at fair value at the end of the second quarter of 2018 was recorded in other expense in our consolidated statement of operations during the second quarter. 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 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). Nora is an industry leader in the rubber flooring market, and this acquisition is expected to advance the Company’s growth strategy in expanding market segments, particularly in the healthcare, life sciences and education market segments. Similar to Interface, nora operates on an international footprint and the Company expects the acquisition will also allow for geographic sales synergies as well. The transaction was accounted for as a business combination using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recorded at their fair market values as of the acquisition date. 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 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. This measurement period adjustment resulted in an increase to assumed deferred tax liabilities of $ 17.2 million and a corresponding increase to goodwill. The fair values of the assets acquired and liabilities assumed are now final and include all measurement period adjustments. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. These amounts were finalized during the second quarter 2019. As of August 7, 2018 (in thousands) Assets acquired (excluding goodwill) $ 359,335 Liabilities assumed ( 114,049 ) Net assets acquired 245,286 Purchase price 447,192 Goodwill, excess of purchase price $ 201,906 Acquired intangible assets of $ 103.3 million include $ 60.8 million of trademarks and tradenames that are not subject to amortization and will instead be subject to annual impairment testing, or more frequent testing should there be a significant change in business conditions. The remaining intangible assets include developed technology of $ 39.1 million that will be amortized on a straight-line basis over the estimated useful life of 7 years and backlog of $ 3.4 million that will be amortized on a straight-line basis over the estimated useful life of six months . The acquired inventory includes a step-up of inventory to fair value of approximately $ 26.6 million which will be recognized in earnings over the expected turns of the inventory. This step-up of inventory to fair value was fully amortized by the end of 2018. 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. 96 Table of Contents The Company recognized $ 9.5 million of transaction costs related to the nora acquisition for 2018. Approximately $ 5.3 million of these expenses are included in selling, general and administrative expenses in the consolidated statement of operations and $ 4.2 million are included in other expenses related to the derivative instrument the Company used to address the foreign currency risk associated with a portion of the nora purchase price. The Company also recognized $ 8.8 million of debt issuance costs in connection with the amended and restated Syndicated Credit Facility, which were recorded as a reduction of long-term debt in the consolidated balance sheet at year end 2018. The following represents the pro forma consolidated statement of operations as if nora had been included in the consolidated results of the Company as of January 1, 2018. 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. Fiscal Year 2018 (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. 97 Table of Contents NOTE 21 – SEGMENT INFORMATION The Company has determined that it has three operating segments – namely, the Americas, Europe and Asia-Pacific geographic regions. The Company has aggregated the three operating segments into one reporting segment because they have similar economic characteristics, and the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment. 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 and reconciliations to the corresponding consolidated amounts follows: Fiscal Year 2020 2019 2018 (in thousands) Net Sales 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 Corporate depreciation and amortization 5,853 5,261 3,923 Reported depreciation and amortization $ 45,920 $ 44,932 $ 39,084 End of Fiscal Year 2020 2019 (in thousands) Assets 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 Eliminations ( 287,425 ) ( 266,202 ) Total reported assets $ 1,306,011 $ 1,423,049 98 Table of Contents 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. No single unaffiliated customer accounted for more than 10 % of total sales in any year during the past three years. Sales to customers in foreign markets in 2020, 2019 and 2018 were approximately 51 %, 49 % and 49 %, respectively, of total net sales. These sales were primarily to customers in Europe, Canada, Asia, Australia and Latin America. 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: Fiscal Year Sales to Unaffiliated Customers (1) 2020 2019 2018 (in thousands) United States $ 545,183 $ 681,868 $ 600,093 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) 2020 2019 (in thousands) United States $ 163,983 $ 132,390 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 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. 99 Table of Contents NOTE 22 – QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED) The following tables set forth, for the fiscal periods indicated, selected consolidated financial data and information regarding the market price per share of the Company’s Common Stock. The prices represent the reported high and low sale prices during the period presented. FISCAL YEAR 2020 FIRST QUARTER (1) SECOND QUARTER (2) THIRD QUARTER (3) FOURTH QUARTER (4) (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 Share prices 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. 100 Table of Contents FISCAL YEAR 2019 FIRST QUARTER (1) SECOND QUARTER (2) THIRD QUARTER (3) FOURTH QUARTER (4) (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 Share prices 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) Results for the second quarter of 2019 include purchase accounting amortization of $ 1.3 million. (3) Results for the third quarter of 2019 include purchase accounting amortization of $ 1.3 million and restructuring and other charges of $ 0.7 million. (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. (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. 101 Table of Contents 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: Fiscal Year 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 ) 102 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Interface, Inc. and Subsidiaries Atlanta, Georgia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Interface, Inc. 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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: (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. 103 Table of Contents Goodwill Impairment Assessment 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) 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 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) 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 March 3, 2021 104 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Interface, Inc. and Subsidiaries Atlanta, Georgia Opinion on Internal Control over Financial Reporting We have audited Interface, Inc. 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 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. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP Atlanta, Georgia March 3, 2021 105 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.