INTERFACE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par values) OCTOBER 3, 2021 JANUARY 3, 2021 (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 92,809 $ 103,053 Accounts receivable, net 153,239 139,869 Inventories, net 256,652 228,725 Prepaid expenses and other current assets 33,011 23,747 Total current assets 535,711 495,394 Property, plant and equipment, net 333,663 359,036 Operating lease right-of-use assets 93,999 98,013 Deferred tax asset 14,658 18,175 Goodwill and intangibles, net 230,928 253,536 Other assets 80,283 81,857 Total assets $ 1,289,242 $ 1,306,011 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 72,517 $ 58,687 Accrued expenses 132,212 105,739 Current portion of operating lease liabilities 15,040 13,555 Current portion of long-term debt 15,067 15,319 Total current liabilities 234,836 193,300 Long-term debt 509,912 561,251 Operating lease liabilities 80,741 86,468 Deferred income taxes 30,492 34,307 Other long-term liabilities 96,484 104,147 Total liabilities 952,465 979,473 Commitments and contingencies Shareholders’ equity Preferred stock, par value $ 1.00 per share; 5,000 shares authorized; none issued or outstanding at October 3, 2021 and January 3, 2021 — — Common stock, par value $ 0.10 per share; 120,000 shares authorized; 59,055 and 58,664 shares issued and outstanding at October 3, 2021 and January 3, 2021, respectively 5,905 5,865 Additional paid-in capital 251,794 247,920 Retained earnings 240,199 208,562 Accumulated other comprehensive loss – foreign currency translation ( 91,026 ) ( 60,331 ) Accumulated other comprehensive loss – cash flow hedge ( 3,373 ) ( 6,190 ) Accumulated other comprehensive loss – pension liability ( 66,722 ) ( 69,288 ) Total shareholders’ equity 336,777 326,538 Total liabilities and shareholders’ equity $ 1,289,242 $ 1,306,011 See accompanying notes to consolidated condensed financial statements. -3- Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 3, 2021 OCTOBER 4, 2020 OCTOBER 3, 2021 OCTOBER 4, 2020 NET SALES $ 312,707 $ 278,642 $ 860,752 $ 826,315 Cost of Sales 206,382 176,480 549,397 512,548 GROSS PROFIT ON SALES 106,325 102,162 311,355 313,767 Selling, General and Administrative Expenses 77,735 88,161 236,867 255,902 Restructuring and Asset Impairment Charges 3,813 ( 1,881 ) 3,621 ( 3,156 ) Goodwill and Intangible Asset Impairment Charge — — — 121,258 OPERATING INCOME (LOSS) 24,777 15,882 70,867 ( 60,237 ) Interest Expense 7,727 5,426 22,272 16,021 Other Expense 887 2,921 2,219 9,551 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 16,163 7,535 46,376 ( 85,809 ) Income Tax Expense 5,204 1,622 12,968 5,736 NET INCOME (LOSS) $ 10,959 $ 5,913 $ 33,408 $ ( 91,545 ) Earnings (Loss) Per Share – Basic $ 0.19 $ 0.10 $ 0.57 $ ( 1.56 ) Earnings (Loss) Per Share – Diluted $ 0.19 $ 0.10 $ 0.57 $ ( 1.56 ) Common Shares Outstanding – Basic 59,057 58,592 58,942 58,507 Common Shares Outstanding – Diluted 59,057 58,592 58,942 58,507 See accompanying notes to consolidated condensed financial statements. -4- Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 3, 2021 OCTOBER 4, 2020 OCTOBER 3, 2021 OCTOBER 4, 2020 Net Income (Loss) $ 10,959 $ 5,913 $ 33,408 $ ( 91,545 ) Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment ( 14,553 ) 23,402 ( 30,695 ) 24,317 Other Comprehensive Income (Loss), Cash Flow Hedge 1,323 864 2,817 ( 5,627 ) Other Comprehensive Income (Loss), Pension Liability Adjustment 2,377 ( 1,471 ) 2,566 ( 80 ) Comprehensive Income (Loss) $ 106 $ 28,708 $ 8,096 $ ( 72,935 ) See accompanying notes to consolidated condensed financial statements. -5- Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) NINE MONTHS ENDED OCTOBER 3, 2021 OCTOBER 4, 2020 OPERATING ACTIVITIES: Net income (loss) $ 33,408 $ ( 91,545 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 35,087 33,480 Stock compensation amortization expense (benefit) 4,150 ( 1,416 ) Deferred income taxes and other 2,564 ( 20,438 ) Amortization of acquired intangible assets 4,269 4,030 Goodwill and intangible asset impairment — 121,258 Working capital changes: Accounts receivable ( 17,061 ) 47,572 Inventories ( 36,230 ) 13,203 Prepaid expenses and other current assets ( 7,022 ) 8,819 Accounts payable and accrued expenses 44,891 ( 17,695 ) CASH PROVIDED BY OPERATING ACTIVITIES 64,056 97,268 INVESTING ACTIVITIES: Capital expenditures ( 17,406 ) ( 46,884 ) Other — ( 183 ) CASH USED IN INVESTING ACTIVITIES ( 17,406 ) ( 47,067 ) FINANCING ACTIVITIES: Repayments of long-term debt ( 106,283 ) ( 114,022 ) Borrowing of long-term debt 57,000 93,000 Tax withholding payments for share-based compensation ( 193 ) ( 1,505 ) Proceeds from issuance of common stock — 93 Dividends paid ( 1,771 ) ( 4,978 ) Debt issuance costs ( 36 ) ( 1,519 ) Finance lease payments ( 1,796 ) ( 1,252 ) CASH USED IN FINANCING ACTIVITIES ( 53,079 ) ( 30,183 ) Net cash (used in) provided by operating, investing and financing activities ( 6,429 ) 20,018 Effect of exchange rate changes on cash ( 3,815 ) 2,400 CASH AND CASH EQUIVALENTS: Net change during the period ( 10,244 ) 22,418 Balance at beginning of period 103,053 81,301 Balance at end of period $ 92,809 $ 103,719 See accompanying notes to consolidated condensed financial statements. -6- Table of Contents INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January 3, 2021, as filed with the Commission. The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature unless otherwise disclosed. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The January 3, 2021, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”). The nine-month period ended October 3, 2021 includes 39 weeks, and the nine-month period ended October 4, 2020 includes 40 weeks. The three-month periods ended October 3, 2021 and October 4, 2020 both include 13 weeks. Risks and Uncertainties The World Health Organization declared the COVID-19 outbreak a pandemic in March 2020, 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 recorded in the first quarter of 2020 and discussed in Note 10 “Goodwill and Intangible Assets,” the continued impacts to our global supply chain, and its consequent impacts on production volume, raw material shortages, raw material cost increases, higher freight costs, shipping delays and labor shortages, gross profit margins, operating income, net income, cash flows, and order rates, there were no other material adverse impacts on the Company’s results of operations and financial position at October 3, 2021. The Company’s primary credit facility has various financial and other covenants including, but not limited to, a covenant to not exceed a maximum secured net debt to EBITDA ratio, as defined by the credit facility agreement. The Company is currently in compliance with all covenants under the credit facility agreement and anticipates that it will remain in compliance with the covenants for the foreseeable future. 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, produce our products and service customers. The impact of COVID-19 could result in additional impairment losses related to goodwill, intangible assets, and property, plant and equipment. As the virus spreads through communities, it could impact the physical health, mental health, and productivity of our workforce as many of them are required to shelter in place and work from home for prolonged periods of time, and it could also impact our ability to reach our customers and collaborate with them as they are required to shelter in place and work from home for prolonged periods of time. The COVID-19 pandemic is having broad and negative implications on the global economy, which affects the size and timing of our customers’ capital budgets, and could result in delays or terminations of new and existing renovation projects, remodeling projects, new construction projects, and other projects where our products are used. COVID-19 Impact We continue to monitor our operations and have implemented various programs to mitigate the effects of COVID-19 on our business. Our global supply chain and manufacturing operations continue to experience increased impacts of COVID-19 including raw material shortages, raw material cost increases, higher freight costs, shipping delays, and labor shortages – particularly in the United States. -7- Table of Contents Reclassifications In the first quarter of fiscal 2021, the Company determined that it has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas. Segment disclosures for 2020 have been restated to conform to the current reportable segment structure. See Note 11 entitled “Segment Information” for additional information. Recently Adopted Accounting Pronouncements On January 4, 2021, the Company adopted Accounting Standards Update (“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. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In March 2020, the Financial Accounting Standards Board (“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. While the Company is currently evaluating the impact of adoption of this standard, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements. -8- Table of Contents NOTE 2 – REVENUE RECOGNITION Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98 % of total revenue for both nine-month periods ended October 3, 2021 and October 4, 2020. The remaining 2 % of revenue was generated from the installation of carpet and other flooring-related material for both 2021 and 2020 nine-month periods. Disaggregation of Revenue For the nine months ended October 3, 2021 and October 4, 2020, revenue from the Company’s customers is broken down by geography as follows: Nine Months Ended Geography October 3, 2021 October 4, 2020 Americas 53.5 % 54.7 % Europe 32.6 % 31.4 % Asia-Pacific 13.9 % 13.9 % Revenue from the Company’s customers in the Americas corresponds to the AMS operating segment, and the EAAA operating segment includes revenue from the Europe and Asia-Pacific geographies. See Note 11 entitled “Segment Information” for additional information. -9- Table of Contents NOTE 3 – INVENTORIES Inventories are summarized as follows: October 3, 2021 January 3, 2021 (in thousands) Finished goods $ 176,180 $ 152,836 Work in process 16,487 17,109 Raw materials 63,985 58,780 Inventories, net $ 256,652 $ 228,725 -10- Table of Contents NOTE 4 – EARNINGS PER SHARE The Company computes basic earnings or loss per share (“EPS”) by dividing net income or loss by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings. The Company includes all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in the basic and diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following table shows the computation of basic and diluted EPS: Three Months Ended Nine Months Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands, except per share data) Numerator: Net income (loss) $ 10,959 $ 5,913 $ 33,408 $ ( 91,545 ) Less: distributed and undistributed earnings available to participating securities ( 127 ) ( 46 ) ( 358 ) ( 38 ) Distributed and undistributed earnings (loss) available to common shareholders $ 10,832 $ 5,867 $ 33,050 $ ( 91,583 ) Denominator: Weighted average shares outstanding 58,371 58,140 58,312 58,055 Participating securities 686 452 630 452 Shares for basic EPS 59,057 58,592 58,942 58,507 Dilutive effect of stock options — — — — Shares for diluted EPS 59,057 58,592 58,942 58,507 Basic EPS $ 0.19 $ 0.10 $ 0.57 $ ( 1.56 ) Diluted EPS $ 0.19 $ 0.10 $ 0.57 $ ( 1.56 ) -11- Table of Contents NOTE 5 – LONG-TERM DEBT Long-term debt consisted of the following: October 3, 2021 January 3, 2021 Outstanding Principal Interest Rate (1) Outstanding Principal Interest Rate (1) (in thousands) (in thousands) Syndicated Credit Facility: Revolving loan borrowings $ — — % $ 3,000 4.00 % Term loan borrowings 232,639 1.82 % 282,215 1.87 % Total borrowings under Syndicated Credit Facility 232,639 1.82 % 285,215 1.89 % 5.50% Senior Notes due 2028 300,000 5.50 % 300,000 5.50 % Total debt 532,639 585,215 Less: Unamortized debt issuance costs ( 7,660 ) ( 8,645 ) Total debt, net 524,979 576,570 Less: Current portion of long-term debt ( 15,067 ) ( 15,319 ) Total long-term debt, net $ 509,912 $ 561,251 (1) Represents the stated rate of interest, without the effect of debt issuance costs or interest rate swaps. Syndicated Credit Facility The Syndicated Credit Facility (the “Facility”) provides the Company and certain of its subsidiaries a multicurrency revolving loan and U.S. denominated and multicurrency term loans. Interest on base rate loans is charged at varying rates computed by applying a margin depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on Eurocurrency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin 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 per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility. As of both October 3, 2021 and January 3, 2021, the Company had $ 1.6 million in letters of credit outstanding under the Facility. As of both October 3, 2021 and January 3, 2021, the carrying value of the Company’s borrowings under the Facility approximated its fair value as the Facility bears interest rates that are similar to existing market rates. Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter. The Company is currently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future. 5.50% Senior Notes due 2028 The 5.50% Senior Notes due 2028 (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 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. -12- Table of Contents As of October 3, 2021, the estimated fair value of the Senior Notes was $ 316.5 million, compared with a carrying value recorded in the Company’s consolidated condensed balance sheet of $ 300.0 million, excluding unamortized debt issuance costs. The fair value of the Senior Notes is derived using quoted prices for similar instruments and is considered Level 2 within the fair value hierarchy. Other Lines of Credit Subsidiaries of the Company had 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 both October 3, 2021 and January 3, 2021. As of October 3, 2021 and January 3, 2021, 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. As these fees are expensed over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are expensed. As of October 3, 2021 and January 3, 2021, the unamortized debt issuance costs recorded as a reduction of long-term debt were $ 7.7 million and $ 8.6 million, respectively. Other deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of revolving debt, net of accumulated amortization, were $ 1.7 million and $ 2.0 million as of October 3, 2021 and January 3, 2021, respectively. These amounts are included in other assets in the Company’s consolidated condensed balance sheets. The Company amortizes these costs over the life of the related debt. -13- Table of Contents NOTE 6 – DERIVATIVE INSTRUMENTS Interest Rate Risk Management From time to time, the Company enters into interest rate swap transactions to fix the variable interest rate on a portion of its term loan borrowing in order to manage a portion of its exposure to interest rate fluctuations. The Company’s objective and strategy with respect to these interest rate swaps is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability to cash flows relating to interest payments on a portion of its outstanding debt. Cash Flow Interest Rate Swaps In the fourth quarter of 2020 the Company terminated its designated interest rate swap transactions with a total notional value of $ 250 million. Hedge accounting was also discontinued at that time. Losses recorded in accumulated other comprehensive loss for these terminated interest rate swaps are reclassified and recorded in the consolidated condensed statements of operations to the extent it is probable that a portion of the original forecasted transactions related to the portion of the hedged debt repaid will not occur by the end of the originally specified time period. See Note 14 entitled “Items Reclassified From Accumulated Other Comprehensive Loss” for additional information. As of October 3, 2021 and January 3, 2021, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps was $ 4.7 million and $ 8.7 million, respectively, and will be amortized to earnings over the remaining term of the interest rate swaps prior to termination. We expect that approximately $ 3.3 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 had on accumulated other comprehensive loss, net of tax, during the three and nine months ended October 4, 2020: Three Months Ended Nine Months Ended October 4, 2020 October 4, 2020 (in thousands) Interest rate swap contracts gain (loss) $ 864 $ ( 5,627 ) Derivative Transactions Not Designated as Hedging Instruments Our Asia-Pacific operations, from time to time, purchase foreign currency options to economically hedge inventory purchases denominated in foreign currencies other than their functional currency. The Company’s objective with respect to these foreign currency options is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to payment on inventory purchases. These options are classified as non-designated derivative instruments. Gains and losses on the changes in fair value of these foreign currency options are recognized in earnings each period. As of October 3, 2021, the Company had no outstanding foreign currency options. The table below sets forth the fair value of derivative instruments not designated as hedging instruments as of October 3, 2021 and January 3, 2021: Asset Derivatives Balance Sheet Location Fair Value as of October 3, 2021 Fair Value as of January 3, 2021 (in thousands) Foreign currency options Other current assets $ — $ 37 -14- Table of Contents The following tables summarize gains and losses on derivatives not designated as hedging instruments within the consolidated condensed statements of operations for the three and nine months ended October 3, 2021 and October 4, 2020: Three Months Ended Statement of Operations Location October 3, 2021 October 4, 2020 (in thousands) Foreign currency options gain Other expense $ 101 $ 11 Nine Months Ended Statement of Operations Location October 3, 2021 October 4, 2020 (in thousands) Foreign currency options gain Other expense $ 420 $ 90 -15- Table of Contents NOTE 7 – SHAREHOLDERS’ EQUITY The following tables depict the activity in the accounts which make up shareholders’ equity for the three and nine months ended October 3, 2021 and October 4, 2020: SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands) Balance, at January 3, 2021 58,664 $ 5,865 $ 247,920 $ 208,562 $ ( 69,288 ) $ ( 60,331 ) $ ( 6,190 ) Net income — — — 6,938 — — — Restricted stock issuances 376 38 5,277 — — — — Unamortized compensation expense related to restricted stock awards — — ( 5,315 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 589 ) — — — Compensation expense related to stock awards, net of forfeitures ( 26 ) ( 2 ) 689 — — — — Pension liability adjustment — — — — 89 — — Foreign currency translation adjustment — — — — — ( 19,597 ) — Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge — — — — — — 749 Balance, at April 4, 2021 59,014 $ 5,901 $ 248,571 $ 214,911 $ ( 69,199 ) $ ( 79,928 ) $ ( 5,441 ) Net income — — — 15,511 — — — Restricted stock issuances 52 6 789 — — — — Unamortized compensation expense related to restricted stock awards — — ( 794 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 589 ) — — — Compensation expense related to stock awards — — 1,548 — — — — Pension liability adjustment — — — — 100 — — Foreign currency translation adjustment — — — — — 3,455 — Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge — — — — — — 745 Balance, at July 4, 2021 59,066 $ 5,907 $ 250,114 $ 229,833 $ ( 69,099 ) $ ( 76,473 ) $ ( 4,696 ) Net income — — — 10,959 — — — Cash dividends declared, $ 0.01 per common share — — — ( 593 ) — — — Compensation expense related to stock awards, net of forfeitures ( 11 ) ( 2 ) 1,680 — — — — Pension liability adjustment — — — — 2,377 — — Foreign currency translation adjustment — — — — — ( 14,553 ) — Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge — — — — — — 1,323 Balance, at October 3, 2021 59,055 $ 5,905 $ 251,794 $ 240,199 $ ( 66,722 ) $ ( 91,026 ) $ ( 3,373 ) -16- Table of Contents SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands) Balance, at December 29, 2019 58,416 $ 5,842 $ 250,306 $ 286,056 $ ( 56,700 ) $ ( 113,139 ) $ ( 4,163 ) Net loss — — — ( 102,167 ) — — — Issuances of stock (other than restricted stock) 220 22 197 — — — — Restricted stock issuances 107 10 1,720 — — — — Unamortized compensation expense related to restricted stock awards — — ( 1,731 ) — — — — Cash dividends declared, $ 0.065 per common share — — — ( 3,807 ) — — — Compensation expense related to stock awards, net of forfeitures ( 255 ) ( 25 ) ( 4,114 ) — — — — Pension liability adjustment — — — — 1,733 — — Foreign currency translation adjustment — — — — — ( 15,245 ) — Cash flow hedge unrealized loss — — — — — — ( 6,140 ) Balance, at April 5, 2020 58,488 $ 5,849 $ 246,378 $ 180,082 $ ( 54,967 ) $ ( 128,384 ) $ ( 10,303 ) Net income — — — 4,709 — — — Issuances of stock (other than restricted stock) 12 1 ( 1 ) — — — — Restricted stock issuances 70 7 2,294 — — — — Unamortized compensation expense related to restricted stock awards — — ( 2,300 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 585 ) — — — Compensation expense related to stock awards, net of forfeitures ( 26 ) ( 3 ) ( 48 ) — — — — Pension liability adjustment — — — — ( 342 ) — — Foreign currency translation adjustment — — — — — 16,160 — Cash flow hedge unrealized loss — — — — — — ( 351 ) Balance, at July 5, 2020 58,544 $ 5,854 $ 246,323 $ 184,206 $ ( 55,309 ) $ ( 112,224 ) $ ( 10,654 ) Net income — — — 5,913 — — — Issuances of stock (other than restricted stock) 7 1 ( 1 ) — — — — Restricted stock issuances 127 13 ( 15 ) — — — — Unamortized compensation expense related to restricted stock awards — — 2 — — — — Cash dividends declared, $ 0.01 per common share — — — ( 586 ) — — — Compensation expense related to stock awards, net of forfeitures ( 8 ) ( 1 ) 703 — — — — Pension liability adjustment — — — — ( 1,471 ) — — Foreign currency translation adjustment — — — — — 23,402 — Cash flow hedge unrealized loss — — — — — — 864 Balance, at October 4, 2020 58,670 $ 5,867 $ 247,012 $ 189,533 $ ( 56,780 ) $ ( 88,822 ) $ ( 9,790 ) -17- Table of Contents Restricted Stock Awards During the nine months ended October 3, 2021 and October 4, 2020, the Company granted restricted stock awards for 428,400 and 308,100 shares of common stock, respectively. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a one to three-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, certain awards (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause. Compensation expense related to restricted stock grants was $ 2.8 million and $ 0.6 million for the nine months ended October 3, 2021, and October 4, 2020, respectively. The Company has reduced its expense for restricted stock forfeited during the period. The following table summarizes restricted stock outstanding as of October 3, 2021, as well as activity during the nine months then ended: Restricted Shares Weighted Average Grant Date Fair Value Outstanding at January 3, 2021 436,900 $ 24.73 Granted 428,400 14.26 Vested ( 167,200 ) 13.68 Forfeited or canceled ( 14,300 ) 15.48 Outstanding at October 3, 2021 683,800 $ 21.06 As of October 3, 2021, the unrecognized total compensation cost related to unvested restricted stock was $ 6.1 million. That cost is expected to be recognized by the end of 2024. Performance Share Awards During the nine months ended October 3, 2021 and October 4, 2020, the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years , subject to the employee’s continued employment, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that may be issued in settlement of the performance shares to the award recipients may be greater (up to 200 %) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards. The following table summarizes the performance shares outstanding as of October 3, 2021, as well as the activity during the nine months then ended: Performance Shares Weighted Average Grant Date Fair Value Outstanding at January 3, 2021 405,300 $ 16.94 Granted 375,800 13.94 Vested — — Forfeited or canceled ( 63,000 ) 21.43 Outstanding at October 3, 2021 718,100 $ 14.98 Compensation expense (benefit) related to the performance shares was $ 1.4 million and $( 2.0 ) million for the nine months ended October 3, 2021 and October 4, 2020, respectively. The Company has reduced its expense for performance shares forfeited during the period. Unrecognized compensation expense related to these performance shares was approximately $ 9.0 million as of October 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 2024. The tax benefit recognized with regard to restricted stock and performance shares was approximately $ 0.8 million for the nine months ended October 3, 2021. -18- Table of Contents NOTE 8 – LEASES General The Company has operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. The Company’s leases have terms ranging from 1 to 20 years, some of which may include options to extend the lease term for up to 5 years, and certain leases may include an option to terminate the lease. Our lease accounting may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option. The Company records a right-of-use asset and lease liability for leases extending beyond one year for operating and finance leases once a contract that contains a lease is executed and we have the right to control the use of the leased asset. The right-of-use asset is measured as the present value of the lease obligation. The discount rate used to calculate the present value of the lease liability was the Company’s incremental borrowing rate for the applicable geographical region. As of October 3, 2021, there were no significant leases that had not commenced. The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to the Company’s leases as of October 3, 2021 and January 3, 2021: October 3, 2021 January 3, 2021 Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases (in thousands) Operating lease right-of-use assets $ 93,999 $ 98,013 Current portion of operating lease liabilities $ 15,040 $ 13,555 Operating lease liabilities 80,741 86,468 Total operating lease liabilities $ 95,781 $ 100,023 Property, plant and equipment, net $ 6,961 $ 6,138 Accrued expenses $ 1,814 $ 1,496 Other long-term liabilities 3,490 2,688 Total finance lease liabilities $ 5,304 $ 4,184 Lease Costs Three Months Ended Nine Months Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Finance lease cost: Amortization of right-of-use assets $ 646 $ 176 $ 1,230 $ 811 Interest on lease liabilities 37 22 104 56 Operating lease cost 5,240 6,095 17,040 19,076 Short-term lease cost 222 85 864 426 Variable lease cost 730 1,089 2,018 2,659 Total lease cost $ 6,875 $ 7,467 $ 21,256 $ 23,028 -19- Table of Contents Other Supplemental Information Three Months Ended Nine Months Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 16 $ 22 $ 83 $ 56 Operating cash flows from operating leases 6,677 5,528 17,353 16,978 Financing cash flows from finance leases 680 442 1,796 1,252 Right-of-use assets obtained in exchange for new finance lease liabilities 67 1,156 2,811 1,709 Right-of-use assets obtained in exchange for new operating lease liabilities 6,417 1,517 12,062 5,582 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 October 3, 2021 and January 3, 2021: October 3, 2021 January 3, 2021 Weighted-average remaining lease term – finance leases (in years) 3.28 3.35 Weighted-average remaining lease term – operating leases (in years) 10.03 10.61 Weighted-average discount rate – finance leases 2.84 % 2.64 % Weighted-average discount rate – operating leases 5.87 % 5.98 % 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 (excluding the nine months ended October 3, 2021) $ 4,842 $ 696 2022 17,833 1,821 2023 13,698 1,441 2024 12,225 1,055 2025 10,578 412 Thereafter 71,205 135 Total future minimum lease payments (undiscounted) 130,381 5,560 Less: Present value discount ( 34,600 ) ( 256 ) Total lease liability $ 95,781 $ 5,304 -20- Table of Contents NOTE 9 – EMPLOYEE BENEFIT PLANS During the three and nine months ended October 3, 2021, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.6 million and $ 2.0 million, respectively. During the three and nine months ended October 4, 2020, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.6 million and $ 1.9 million, respectively. The following tables provide the components of net periodic benefit cost for the three and nine months ended October 3, 2021 and October 4, 2020: Three Months Ended Nine Months Ended Defined Benefit Retirement Plans (Europe) October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Interest cost $ 570 $ 907 $ 1,721 $ 2,668 Expected return on assets ( 847 ) ( 1,082 ) ( 2,556 ) ( 3,184 ) Amortization of prior service cost 28 27 86 79 Amortization of net actuarial losses 402 335 1,215 981 Net periodic benefit cost $ 153 $ 187 $ 466 $ 544 Three Months Ended Nine Months Ended Salary Continuation Plan October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Interest cost $ 176 $ 234 $ 529 $ 703 Amortization of net actuarial losses 186 140 558 419 Net periodic benefit cost $ 362 $ 374 $ 1,087 $ 1,122 Three Months Ended Nine Months Ended nora Defined Benefit Plan October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Service cost $ 271 $ 274 $ 825 $ 791 Interest cost 101 117 308 338 Amortization of net actuarial losses 89 58 273 168 Net periodic benefit cost $ 461 $ 449 $ 1,406 $ 1,297 In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income (loss) in the consolidated condensed statements of operations, while all other components of net periodic benefit costs are presented within other expense in the consolidated condensed statements of operations. -21- Table of Contents NOTE 10 – GOODWILL AND INTANGIBLE ASSETS In the first quarter of 2021, the Company determined that it has two operating and reportable segments – namely AMS and EAAA. See Note 11 entitled “Segment Information” for additional information. The Company tests goodwill for impairment at least annually at the reporting unit level. The Company’s reporting units remain unchanged following the realignment of its operating segments and consist of the Americas, Europe, and Asia-Pacific. The Americas reporting unit is the same as the AMS reportable segment, and the Europe and Asia-Pacific reporting units are one level below the EAAA reportable segment. During the first quarter of 2020, as a result of changes in macroeconomic conditions related to the COVID-19 pandemic, the Company recognized a charge of $ 121.3 million for the impairment of goodwill and certain intangible assets. As a result of the first quarter 2020 assessment, we determined that the fair value for two reporting units was less than their 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. There were no indicators of additional goodwill impairment as of October 3, 2021. The changes in the carrying amounts of goodwill attributable to each reportable segment for the nine months ended October 3, 2021 are as follows: AMS EAAA Total (in thousands) Balance, at January 3, 2021 $ 122,344 $ 43,433 $ 165,777 Foreign currency translation ( 10,272 ) ( 3,647 ) ( 13,919 ) Balance, at October 3, 2021 $ 112,072 $ 39,786 $ 151,858 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. The carrying value of intangible assets was $ 79.0 million at October 3, 2021. There were no indicators of additional intangible asset impairment as of the end of the third quarter of 2021. -22- Table of Contents NOTE 11 – SEGMENT INFORMATION The Company determines that an operating segment exists if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has operating results that are regularly reviewed by the chief operating decision maker (“CODM”) and (iii) has discrete financial information. Additionally, accounting standards require the utilization of a “management approach” to report the financial results of operating segments, which is based on information used by the CODM to assess performance and make operating and resource allocation decisions. In the first quarter of 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas and determined that it has two operating segments organized by geographical area – namely (a) Americas (“AMS”) and (b) Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas. Pursuant to the management approach discussed above, the Company’s CODM, our chief executive officer, evaluates performance at the AMS and EAAA operating segment levels and makes operating and resource allocation decisions based on segment adjusted operating income or loss (“AOI”), which includes allocations of corporate selling, general and administrative expenses. AOI excludes nora purchase accounting amortization, goodwill and intangible asset impairment charges, changes in equity award forfeiture accounting, restructuring charges, asset impairment, severance and other charges, and an SEC settlement fine. Intersegment revenues for the three and nine months ended October 3, 2021 were $ 20.1 million and $ 56.4 million, respectively, and intersegment revenues for the three and nine months ended October 4, 2020 were $ 15.6 million and $ 56.2 million, respectively. Intersegment revenues are eliminated from net sales presented below since these amounts are not included in the information provided to the CODM. The Company has determined that it has two reportable segments – AMS and EAAA as each operating segment meets the quantitative thresholds defined in the accounting guidance. Segment information below for fiscal year 2020 has been restated to reflect our new reportable segment structure. Three Months Ended Nine Months Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) Net Sales AMS $ 176,770 $ 142,858 $ 460,402 $ 452,171 EAAA 135,937 135,784 400,350 374,144 Total net sales $ 312,707 $ 278,642 $ 860,752 $ 826,315 Segment AOI AMS $ 21,595 $ 20,279 $ 54,606 $ 67,771 EAAA 8,586 7,821 26,557 17,151 Depreciation and Amortization AMS $ 4,365 $ 4,301 $ 13,592 $ 12,174 EAAA 7,052 7,431 21,495 21,306 Total depreciation and amortization $ 11,417 $ 11,732 $ 35,087 $ 33,480 -23- Table of Contents A reconciliation of the Company’s total operating segment assets to the corresponding consolidated amounts follows: October 3, 2021 January 3, 2021 (in thousands) Assets AMS $ 808,015 $ 800,068 EAAA 697,799 682,295 Total segment assets 1,505,814 1,482,363 Corporate assets 123,196 111,073 Eliminations ( 339,768 ) ( 287,425 ) Total reported assets $ 1,289,242 $ 1,306,011 Reconciliations of operating income (loss) to income (loss) before income tax expense and segment AOI are presented as follows: Three Months Ended Nine Months Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 (in thousands) AMS operating income $ 21,684 $ 14,857 $ 54,432 $ 52,144 EAAA operating income (loss) 3,093 1,025 16,435 ( 112,381 ) Consolidated operating income (loss) 24,777 15,882 70,867 ( 60,237 ) Interest expense 7,727 5,426 22,272 16,021 Other expense 887 2,921 2,219 9,551 Income (loss) before income tax expense $ 16,163 $ 7,535 $ 46,376 $ ( 85,809 ) Three Months Ended October 3, 2021 Three Months Ended October 4, 2020 AMS EAAA AMS EAAA (in thousands) Operating income $ 21,684 $ 3,093 $ 14,857 $ 1,025 Purchase accounting amortization — 1,407 — 1,399 Restructuring, asset impairment, severance and other charges ( 89 ) 4,086 2,733 3,086 SEC fine — — 2,689 2,311 AOI $ 21,595 $ 8,586 $ 20,279 $ 7,821 Nine Months Ended October 3, 2021 Nine Months Ended October 4, 2020 AMS EAAA AMS EAAA (in thousands) Operating income (loss) $ 54,432 $ 16,435 $ 52,144 $ ( 112,381 ) Purchase accounting amortization — 4,269 — 4,030 Goodwill and intangible asset impairment — — 2,695 118,563 Impact of change in equity award forfeiture accounting — — 757 650 Restructuring, asset impairment, severance and other charges 174 5,853 9,486 3,978 SEC fine — — 2,689 2,311 AOI $ 54,606 $ 26,557 $ 67,771 $ 17,151 -24- Table of Contents NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest amounted to $ 13.2 million and $ 16.0 million for the nine months ended October 3, 2021 and October 4, 2020, respectively. Income tax payments, net of refunds, amounted to $ 15.3 million and $ 8.2 million for the nine months ended October 3, 2021 and October 4, 2020, respectively. See Note 8 entitled “Leases” for supplemental disclosures related to finance and operating leases. -25- Table of Contents NOTE 13 – INCOME TAXES The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate and records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. During the nine months ended October 3, 2021, the Company recorded a total income tax provision of $ 13.0 million on pre-tax income of $ 46.4 million resulting in an effective tax rate of 28.0 %, as compared to a total income tax provision of $ 5.7 million on a pre-tax loss of $ 85.8 million resulting in an effective tax rate of ( 6.7 )% during the nine months ended October 4, 2020. The effective tax rate for the period ended October 4, 2020 was primarily impacted by a non-deductible goodwill impairment. Excluding the impact of the goodwill impairment, the effective tax rate was 18.7 % during the nine months ended October 4, 2020. The increase in the effective tax rate as compared to the period ended October 4, 2020, excluding the non-deductible goodwill impairment, was due to the one-time favorable impacts of amending prior year tax returns during the nine months ended October 4, 2020. In the first nine months of 2021, the Company decreased its liability for unrecognized tax benefits by $ 0.6 million. The decrease was primarily due to settlements with taxing authorities and a lapse of applicable statute of limitations. As of October 3, 2021, the Company had accrued approximately $ 10.2 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of October 3, 2021 reflects a reduction for $ 3.0 million of these unrecognized tax benefits. In October 2021, the statute of limitations for the 2017 U.S. federal income tax return closed. As a result of this lapse in the statute of limitations, the Company will recognize $ 1.2 million of unrecognized tax benefits in the fourth quarter of 2021. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, it is reasonably possible that approximately $ 1.7 million of unrecognized tax benefits, including the $ 1.2 million to be recognized in the fourth quarter of 2021, may be recognized within the next 12 months due to a lapse of statute of limitations. -26- Table of Contents NOTE 14 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS Amounts reclassified out of accumulated other comprehensive loss (“AOCI”), before tax, to the consolidated condensed statements of operations during the three and nine months ended October 3, 2021 and October 4, 2020 are reflected in the table below: Three Months Ended Statement of Operations Location October 3, 2021 October 4, 2020 (in thousands) Interest rate swap contracts loss Interest expense $ ( 1,845 ) $ ( 1,328 ) Amortization of benefit plan prior service cost and net actuarial losses Other expense ( 705 ) ( 560 ) Total loss reclassified from AOCI, net $ ( 2,550 ) $ ( 1,888 ) Nine Months Ended Statement of Operations Location October 3, 2021 October 4, 2020 (in thousands) Interest rate swap contracts loss Interest expense $ ( 3,952 ) $ ( 2,944 ) Amortization of benefit plan prior service cost and net actuarial losses Other expense ( 2,132 ) ( 1,647 ) Total loss reclassified from AOCI, net $ ( 6,084 ) $ ( 4,591 ) -27- Table of Contents NOTE 15 – RESTRUCTURING AND OTHER CHARGES A summary of restructuring activities for the 2021 and 2019 restructuring plans are presented below: Workforce Reduction Asset Impairment 2021 Plan 2019 Plan 2021 Plan Total (in thousands) Balance, at January 3, 2021 $ — $ 1,064 $ — $ 1,064 Charged to expenses 2,229 ( 258 ) 1,650 3,621 Deductions — ( 645 ) — ( 645 ) Charged to other accounts — — ( 1,650 ) ( 1,650 ) Balance, at October 3, 2021 $ 2,229 $ 161 $ — $ 2,390 For the nine months ended October 3, 2021, the Company recorded restructuring and asset impairment charges of $ 3.6 million. At October 3, 2021, the restructuring reserve was $ 2.4 million. Below is a discussion of the restructuring plan activities under the 2021 and 2019 restructuring plans. 2021 Restructuring Plan On September 8, 2021, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations. The plan involves a reduction of approximately 188 employees and the closure of the Company’s manufacturing facility in Thailand at the end of the first quarter of 2022. As a result of this plan, the Company expects to incur pre-tax restructuring charges between the third quarter of 2021 and the fourth quarter of 2022 of approximately $ 4 million to $ 5 million. The expected charges are comprised of severance expenses ($ 2.2 million), retention bonuses ($ 0.5 million), and asset impairment and other charges ($ 2.0 million). The retention costs of approximately $ 0.5 million will be recognized through the end of fiscal year 2022 as earned over the requisite service periods. Restructuring charges of $ 3.9 million comprised of severance and asset impairment charges were recognized during the third quarter of 2021. The restructuring plan is expected to result in future cash expenditures of approximately $ 3 million to $ 4 million for payment of the employee severance, employee retention bonuses and other costs of the shutdown of the Thailand manufacturing facility, as described above. The Company expects to complete the restructuring plan in fiscal year 2022 and expects the plan to yield annualized savings of approximately $ 1.7 million. A portion of the annualized savings is expected to be realized on the income statement in fiscal year 2022, with the remaining portion of the annualized savings expected to be realized in fiscal year 2023. 2019 Restructuring Plan On December 23, 2019, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved a reduction of approximately 105 employees and early termination of two office leases. As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $ 9.0 million. The charge was comprised of severance expenses ($ 8.8 million) and lease exit costs ($ 0.2 million). The restructuring plan was expected to result in cash expenditures of approximately $ 9.0 million for payment of the employee severance and lease exit costs, as described above. The Company expects to complete the restructuring plan in fiscal year 2021 and 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. -28- Table of Contents