What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-02 compared with 2021-03-03 · 61 added, 51 removed, 177 unchanged (39% of the section changed)

3 unchanged sentences

The COVID-19 pandemic could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, financial condition, liquidity, capital investments, our near term and long term ability to stay in compliance with debt covenants under our Syndicated Credit Facility and Senior Notes, our ability to refinance our existing indebtedness, and our ability to obtain financing in capital markets.

The World Health Organization has declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services.

The COVID-19 pandemic continues to impact areas where we operate and sell our products and services.

The COVID-19 pandemic and similar issues in the future could have a material adverse effect on:

5 unchanged sentences

and our ability to gain financing in the capital markets.

Tab le of Contents

Public health organizations have recommended, and many governments have implemented, measures from time to time during the pandemic to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements.

2 unchanged sentences

decreased employee availability;

employee reluctance to receive COVID-19 vaccinations, whether recommended or potentially required;

increased overtime and temporary labor costs;

potential border closures;

and disruptions to the businesses of our selling channel partners, and others.

Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain, raw material inflation or the inability to get the raw materials necessary to produce our products, increased shipping and transport costs, as well as decreased construction and renovation spending and decreased demand for our products and services.

We may also experience continued manufacturing personnel shortages, which may adversely affect our ability to manufacture our products.

Our suppliers and customers also have faced these and other challenges, which have led to disruption in our supply chain, raw material inflation, the inability to obtain sufficient raw materials necessary to produce our products, increased shipping and transport costs, as well as decreased construction and renovation spending and decreased demand for our products and services.

These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing from the capital markets.

9 unchanged sentences

These effects may recur and could be more pronounced if global economic conditions do not improve or are weakened by negative cycles or other factors, including as a result of the continuing COVID-19 pandemic.

Our earnings could be adversely affected by non-cash adjustments to goodwill, when a test of goodwill assets indicate a material impairment of those assets.

Tab le of Contents

Our earnings could be adversely affected by non-cash adjustments to goodwill, when a test of goodwill assets indicates a material impairment of those assets.

As prescribed by accounting standards governing goodwill and other intangible assets, we undertake an annual review of the goodwill asset balance reflected in our financial statements.

4 unchanged sentences

International Risk Factors

Our substantial international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including by restrictive taxation or other government regulation and by foreign currency fluctuations.

Our substantial international operations are subject to various political, economic and other uncertainties that could adversely affect our business results, including foreign currency fluctuations, restrictive taxation, custom duties, border closings or other adverse government regulations.

We have substantial international operations and intend to continue to pursue and commit resources to growth opportunities beyond the United States.

Outside of the United States, we maintain manufacturing facilities in the Netherlands, the United Kingdom, China, Thailand, Australia and Germany, in addition to product showrooms or design studios in Canada, Mexico, England, France, Germany, Spain, the Netherlands, India, Australia, Norway, United Arab Emirates, Russia, Singapore, Hong Kong, Thailand, China and elsewhere.

Outside of the United States, we maintain manufacturing facilities in the Netherlands, the United Kingdom, China, Thailand (anticipated closure at the end of the first quarter of 2022), Australia and Germany, in addition to product showrooms or design studios in Mexico, England, France, Germany, Spain, the Netherlands, India, Australia, United Arab Emirates, Russia, Singapore, Hong Kong, Thailand, China and elsewhere.

In 2021, approximately half of our net sales and a significant portion of our production were outside the United States, primarily in Europe and Asia-Pacific.

8 unchanged sentences

increased nationalism and protectionism;

crime and social instability;

tariffs and other trade barriers;

6 unchanged sentences

There can be no assurance that we will not experience these risks in the future.

Risks include, for example, the uncertainty surrounding the implementation and effect of the United Kingdom’s exit from the European Union described below, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union.

Risks include, for example, the uncertainty surrounding the ongoing implementation and effect of the United Kingdom’s exit from the European Union described below, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union.

We conduct business in Russia and Ukraine, which subjects us to risks inherent with current geopolitical tensions between the two countries.

We also make a substantial portion of our net sales in currencies other than U.S.

1 unchanged sentence

The scope and volume of our global operations make it impossible to eliminate completely all foreign currency translation risks as an influence on our financial results.

Tab le of Contents

In addition, due to our global operations, we are subject to many laws governing international relations and international operations, including laws that prohibit improper payments to government officials and commercial customers and that restrict where we can do business, what information or products we can import and export to and from certain countries and what information we can provide to a non-U.S.

5 unchanged sentences

We have internal policies and procedures relating to compliance with such regulations;

however, there is a risk that such policies and procedures will not always protect us from the improper acts of employees, agents, business partners, joint venture partners or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures.

however, there is a risk that such policies and procedures will not always protect us from the improper acts of employees, agents, business partners or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures.

Violations of these laws, which are complex, may result in criminal penalties, sanctions and/or fines that could have an adverse effect on our business, financial condition and results of operations and reputation.

4 unchanged sentences

The risks outlined above, and others specific to certain jurisdictions that we may not be aware of, could adversely and materially affect our business and results.

The uncertainty surrounding the implementation and effect of the U.K.’s exit from the European Union, and related negative developments in the European Union could adversely affect our business, results of operations or financial condition.

The uncertainty surrounding the ongoing implementation and effect of the U.K.’s exit from the European Union, and related negative developments in the European Union could adversely affect our business, results of operations or financial condition.

In 2016, voters in the U.K.

2 unchanged sentences

In December 2020, the U.K.

and the European Union agreed on a trade and cooperation agreement, which is being applied provisionally until it is formally ratified by the European Union parliament.

and the European Union agreed on a trade and cooperation agreement.

Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the U.K.

and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal.

The uncertainty leading up to and following Brexit has had, and the implementation of Brexit may continue to have, a negative impact on our business and demand for our products in Europe, and particularly in the U.K.

The uncertainty leading up to and following Brexit has had, and the ongoing implementation of Brexit may continue to have, a negative impact on our business and demand for our products in Europe, and particularly in the U.K.

Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions and regulatory agencies.

14 unchanged sentences

• limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy;

Tab le of Contents

• placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged;

1 unchanged sentence

• limiting our ability to refinance our existing indebtedness as it matures.

In addition, borrowings under our credit facility have variable interest rates, and therefore our interest expenses will increase if the underlying market rates (upon which the variable interest rates are based) increase.

In addition, borrowings under our credit facility have variable interest rates, and therefore our interest expense will increase if the underlying market rates (upon which the variable interest rates are based) increase.

Furthermore, on July 27, 2017, the U.K.

Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.

This announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021, and LIBOR may be discontinued or modified by 2021.

Specifically, the FCA stopped publishing one week and two month U.S.

dollar LIBOR rates as of December 31, 2021, and the remaining U.S.

dollar LIBOR rates will cease to be published on June 30, 2023.

The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) in April 2018 as an alternative for LIBOR.

4 unchanged sentences

This facility allows for the use of an alternative benchmark rate if LIBOR is no longer available.

At this time, we cannot predict the overall effect of the modification or discontinuation of LIBOR or the establishment of alternative benchmark rates.

In December 2021, we amended our existing credit facility to replace LIBOR with a successor rate for loans denominated in euros or British Pound sterling.

At this time, we cannot predict the overall effect of the modification or discontinuation of LIBOR on our U.S.

dollar denominated loans under the existing credit facility or the establishment of alternative benchmark rates.

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt.

7 unchanged sentences

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

In addition, borrowings under our Syndicated Credit Facility have variable interest rates, and therefore our interest expense will increase if the underlying market rates (upon which the variable interest rates are based) increase.

We may incur substantial additional indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.

2 unchanged sentences

If new debt is added to our and our subsidiaries’ existing debt levels, the related risks we now face would increase.

Tab le of Contents

Risk Factors Related to our Business and Operations

11 unchanged sentences

If this occurs, it could negatively affect our sales as our customers choose other product offerings.

Our success depends significantly upon the efforts, abilities and continued service of our senior management executives, our principal design consultant and other key personnel (including sales personnel), and our loss of any of them could affect us adversely.

Our success depends significantly upon the efforts, abilities and continued service of our senior management executives, our principal design consultant and other key personnel (including experienced sales and manufacturing personnel), and our loss of any of them could affect us adversely.

We believe that our success depends to a significant extent upon the efforts and abilities of our senior management executives.

2 unchanged sentences

Our agreement with David Oakey Designs can be terminated by either party upon six months prior written notice to the other party.

Our business also depends on the recruitment and retention of other key personnel, including strong sales leaders.

Our business also depends on the recruitment and retention of other key personnel, including experienced sales and manufacturing personnel.

The increasing demand for qualified personnel makes it more difficult for us to attract and retain employees with requisite skill sets, particularly employees with specialized technical and trade experience.

In certain locations where we operate, the demand for labor has exceeded the supply of labor, resulting in higher costs.

Despite our focused efforts to attract and retain employees, including by offering higher levels of compensation in certain instances, we experienced attrition rates within our hourly workforce in fiscal 2021 that exceeded historical levels and we incurred higher operating costs at certain of our facilities in the form of higher levels of overtime pay.

The market for professional workers was, and remains, similarly challenging.

Many of our professional workers continue to work from home as part of our COVID-19 protocols and, although in most instances we expect to offer flexible working arrangements in the future, we may experience higher levels of attrition within our professional workforce.

We may lose the services of key personnel for a variety of reasons, including if our compensation programs become uncompetitive in the relevant markets for our employees and service providers, or if the Company undergoes significant disruptive change (including not only economic downturns, but potentially other changes management believes are positive in the long term).

1 unchanged sentence

We may not be able to easily replace such personnel, particularly if the underlying reasons for the loss make the Company relatively unattractive as an employer.

We are implementing a multi-year transformation of our sales organization, including the implementation of standardized processes in which our sales force goes to market, interacts with customers, works with the architect and design community and, in general, operates day-to-day.

We are also implementing technology tools that the sales force will be required to use as part of their day-to-day jobs, and new management positions to actively manage and coach the sales force.

We continue to implement a multi-year transformation of our sales organization, including the standardized processes and systems that our sales force uses to go to market, interact with customers, work with architects and the design community and, in general, operate day-to-day.

We also continue to improve and change the technology tools that the sales force is required to use as part of their day-to-day jobs, and monitor managerial positions that are designed to actively manage and coach the sales force.

All of these changes are disruptive, which may create challenges for our sales force to adapt, particularly for long tenured employees, which comprise a large portion of our sales force.

There are no guarantees that these efforts will increase sales or improve profitability of the business, or that they will not instead adversely disrupt the business, decrease sales, and decrease overall profitability.

Tab le of Contents

Large increases in the cost of our raw materials, shipping costs, duties or tariffs could adversely affect us if we are unable to pass these cost increases through to our customers.

Petroleum-based products comprise the predominant portion of the cost of raw materials that we use in manufacturing carpet.

Petroleum-based products (including yarn) comprise the predominant portion of the cost of raw materials that we use in manufacturing carpet.

Synthetic rubber uses petroleum-based products as feedstock as well.

We also incur significant shipping and transport costs to move our products around the globe.

While we attempt to match cost increases with corresponding price increases, continued volatility in the cost of raw materials, transportation and shipping costs could adversely affect our financial results if we are unable to pass through such cost increases to our customers.

Unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of synthetic fiber or our sole third party supplier for luxury vinyl tile (“LVT”) could have a material adverse effect on us.

We depend on a small number of third-party suppliers of synthetic fiber and a single supplier for our LVT products.

The unanticipated termination or interruption of any of our supply arrangements with our current suppliers of synthetic fiber (nylon) or sole supplier of LVT, including failure by any third party supplier to meet our product specifications, could have a material adverse effect on us because we do not have the capability to manufacture our own fiber for use in our carpet products or our own LVT.

Our suppliers may not be able to meet our demand for a variety of reasons, including our inability to forecast our future needs accurately or a shortfall in production by the supplier for reasons unrelated to us, such as work stoppages, acts of war, terrorism, pandemics, fire, earthquake, energy shortages, flooding or other natural disasters.

The primary manufacturing facility of our sole supplier of LVT is located in South Korea.

If any of our supply arrangements with our primary suppliers of synthetic fiber or our sole supplier of LVT is terminated or interrupted, we likely would incur increased manufacturing costs and experience delays in our manufacturing process (thus resulting in decreased sales and profitability) associated with shifting more of our synthetic fiber purchasing to another synthetic fiber supplier or developing new supply chain sources for LVT.

A prolonged inability on our part to source synthetic fiber included in our products or LVT on a cost-effective basis could adversely impact our ability to deliver products on a timely basis, which could harm our sales and customer relationships.

If we fail to realize the expected synergies and other benefits of the nora acquisition, our results of operations and stock price may be negatively affected.

In 2018, we completed the acquisition of nora, a manufacturer and multinational marketer of resilient rubber floor coverings.

The success of the acquisition will depend substantially on our ability to realize the expected synergies and other benefits from combining the Company’s legacy business and nora.

Our ability to realize these anticipated benefits and cost savings is subject to various risks and uncertainties, including the risks that:

• we may not be able to successfully combine and integrate the businesses on a timely basis, or at all;

• the integration process could divert management’s attention, cause employee or customer attrition or cause other disruption;

• nora may not contribute to the revenues and profitability of the combined business as much as we currently expect;

• we may not be able to manage the increased indebtedness we have incurred in connection with the acquisition.

If we are not able to successfully combine the businesses within the anticipated time frame, or at all, the expected synergies and other benefits of the transaction may not be realized fully or at all, or may take longer to realize than expected, the combined businesses may not perform as expected and the results of our operations or value of our common stock may be adversely affected.

It is also possible that the integration process could result in the loss of key employees or customers of the Company or nora, the disruption of the companies’ ongoing businesses or unexpected integration issues, higher than expected integration costs and an overall integration process that takes longer than originally anticipated.

We will be required to devote significant management attention and resources to integrating the Company’s legacy operations and nora.

It is possible that the integration process could result in:

• diversion of management’s attention;

• the lack of personnel or other resources to pursue other potential business opportunities;

• the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.

Any of these consequences could adversely affect each company’s ability to maintain relationships with customers, suppliers, employees and other constituencies or their ability to achieve the anticipated benefits of the transaction, or could reduce each company’s earnings or otherwise adversely affect the business and financial results of the combined company and the value of our common stock.

We also incur significant shipping and transport costs to move our products around the globe, and those costs have increased dramatically due to recent global supply chain challenges.

While we attempt to match cost increases with corresponding price increases, continued inflation and volatility in the cost of raw materials, transportation and shipping costs could adversely affect our financial results if we are unable to pass through such cost increases to our customers.

Unanticipated termination or interruption of any of our arrangements with our primary third-party suppliers of synthetic fiber or our primary third-party supplier for luxury vinyl tile (“LVT”) or other key raw materials could have a material adverse effect on us.

We depend on a small number of third-party suppliers of synthetic fiber and are largely dependent upon two primary suppliers for our LVT products.

The unanticipated termination or interruption of any of our supply arrangements with our current suppliers of synthetic fiber (nylon), our primary suppliers of LVT, or other key raw material suppliers, including failure by any third party supplier to meet our product specifications, could have a material adverse effect on us because we do not have the capability to manufacture our own fiber for use in our carpet products or our own LVT.

Our suppliers may not be able to meet our demand for a variety of reasons, including our inability to forecast our future needs accurately or a shortfall in production by the supplier for reasons unrelated to us, such as work stoppages, acts of war, terrorism, pandemics, epidemics, fire, earthquake, energy shortages, flooding or other natural disasters.

The primary manufacturing facility of our largest supplier of LVT is located in South Korea.

If any of our supply arrangements with our primary suppliers of synthetic fiber, our primary suppliers of LVT, or suppliers of other key raw materials are terminated or interrupted, we likely would incur increased manufacturing costs and experience delays in our manufacturing process (thus resulting in decreased sales and profitability) associated with shifting more of our synthetic fiber purchasing to another synthetic fiber supplier or developing new supply chain sources for LVT.

A prolonged inability on our part to source synthetic fiber included in our products, LVT, or other key raw materials on a cost-effective basis could adversely impact our ability to deliver products on a timely basis, which could harm our sales and customer relationships.

The market price of our common stock has been volatile and the value of your investment may decline.

2 unchanged sentences

As a general matter, market price volatility has had a significant effect on the market values of securities issued by many companies for reasons unrelated to their operating performance.

We thus cannot predict the market price for our common stock going forward.

Changes to our facilities, manufacturing processes, product construction, and product composition could disrupt our operations, increase customer complaints, increase warranty claims, negatively affect our reputation, and have a material adverse effect on our financial condition and results of operations.

From time to time, we make improvements to our physical facilities, or move operations to new ones.

We cannot predict the market price for our common stock going forward.

Changes to our facilities, manufacturing processes, product construction, and product composition could disrupt our operations, increase our manufacturing costs, increase customer complaints, increase warranty claims, negatively affect our reputation, and have a material adverse effect on our financial condition and results of operations.

From time to time, we make improvements and changes to our physical facilities, move operations to other sites, and change our manufacturing processes.

We are also in the process of closing our carpet tile manufacturing facility in Thailand.

Large scale changes or moves could disrupt our normal operations, leading to possible loss of productivity, which may adversely affect our results.

5 unchanged sentences

all of which could negatively affect our operations, reputation, financial condition and results of operations.

Our business operations could suffer significant losses from natural disasters, catastrophes, fire, pandemics or other unexpected events.

While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, our manufacturing facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, or by fire or other unexpected events such as adverse weather conditions, pandemics or other public health crises (such as the COVID-19 pandemic described above), or other disruptions to our facilities, supply chain or our customers’ facilities.

Tab le of Contents

Our business operations could suffer significant losses from natural disasters, acts of war, terrorism, catastrophes, fire, adverse weather conditions, pandemics, endemics or other unexpected events.

While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, our manufacturing facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, whether or not as a result of climate change, or by fire or other unexpected events such as adverse weather conditions, acts of war, terrorism, pandemics or other public health crises (such as the COVID-19 pandemic described above), or other disruptions to our facilities, supply chain or our customers’ facilities.

We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations.

These types of events could also affect our suppliers, installers, and customers, which could have a material adverse impact on our business.

Disruptions to or failures of our information technology systems could adversely affect our business.

5 unchanged sentences

• receive, process and ship orders;

• manage billing, collections and payables;

• manage billing, collections, cash applications, customer service, and payables;

• manage financial reporting;

4 unchanged sentences

• software “bugs”, hardware defects or human error;

• hacking, computer viruses, malware, ransomware, phishing scams, or other cyber attacks.

• hacking, computer viruses, denial of service attacks, malware, ransomware, phishing scams, or other cyber attacks.

Any of these events which deny us use of vital IT systems may seriously disrupt our normal business operations.

2 unchanged sentences

To the extent our IT systems store sensitive data, including about our employees or other individuals, security breaches may expose us to other serious liabilities and reputational harm if such data is misappropriated.

In addition, as cybercriminals continue to become more sophisticated, the costs to defend and insure against cyberattacks can be expected to rise.

In addition, as cybercriminals continue to become more sophisticated and numerous, the costs to defend and insure against cyberattacks can be expected to rise.

Legal Risk Factors

6 unchanged sentences

Please refer to Item 3, “Legal Proceedings,” within this Report for additional information related to litigation and claims.

Tab le of Contents

UNRESOLVED STAFF COMMENTS

Tab le of Contents

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors