What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-02 compared with 2021-03-03 · 454 added, 461 removed, 1138 unchanged (45% of the section changed)

13 unchanged sentences

Interest expense 29,681 29,244 25,656

Other expense 10,889 3,431 5,952

Other expense, net 2,483 10,889 3,431

Income (loss) before income tax expense 72,633 ( 79,420 ) 101,816

1 unchanged sentence

Net income (loss) $ 55,234 $ ( 71,929 ) $ 79,200

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

Earnings (loss) per share – basic $ 0.94 $ ( 1.23 ) $ 1.34

Earnings (loss) per share – diluted $ 0.94 $ ( 1.23 ) $ 1.34

Common shares outstanding – basic 58,971 58,547 58,943

Common shares outstanding – diluted 58,971 58,547 58,948

See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

8 unchanged sentences

Pension liability adjustment 15,400 ( 12,588 ) ( 13,090 )

Other comprehensive income (loss) ( 21,242 ) 38,193 ( 30,231 )

Comprehensive income (loss) $ 33,992 $ ( 33,736 ) $ 48,969

See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

31 unchanged sentences

5,000 shares authorized;

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

none issued or outstanding at January 2, 2022 and January 3, 2021

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

59,055 and 58,664 shares issued and outstanding at January 2, 2022 and January 3, 2021, respectively

Additional paid-in capital 253,110 247,920

6 unchanged sentences

See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

9 unchanged sentences

Loss on disposal of fixed assets 4,427 4,996 —

Enactment of U.S.

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

Bad debt expense ( 263 ) 3,843 1,206

1 unchanged sentence

Amortization of acquired intangible assets 5,636 5,457 5,903

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

Goodwill and intangible asset impairment — 121,258 —

7 unchanged sentences

Capital expenditures ( 28,071 ) ( 62,949 ) ( 74,647 )

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

Other — 1,260 425

3 unchanged sentences

Revolving loan repayments ( 71,500 ) ( 131,024 ) ( 87,664 )

Term loan borrowing — — 462,847

Term loan repayments ( 60,485 ) ( 304,425 ) ( 24,028 )

7 unchanged sentences

Finance lease payments ( 2,282 ) ( 1,727 ) ( 1,255 )

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

Cash used in financing activities ( 60,858 ) ( 42,715 ) ( 66,677 )

Net cash provided by (used in) operating, investing and financing activities ( 2,240 ) 14,666 869

5 unchanged sentences

See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

3 unchanged sentences

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.

Interface is a global flooring company specializing in carbon neutral carpet tile and resilient flooring, including luxury vinyl tile (“LVT”), vinyl sheet, and nora® rubber flooring.

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

The Company also manufactures and sells resilient rubber flooring.

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 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.

See Note 20 entitled “Segment Information” for additional information.

Principles of Consolidation

5 unchanged sentences

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.

In March 2020, 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 impact to our gross margins and our global supply chain in 2021, the 2020 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 2, 2022.

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;

On July 15, 2020, November 17, 2020, and December 9, 2021, the Company amended its Syndicated Credit Facility;

see Note 9 entitled “Long-Term Debt” for additional information.

5 unchanged sentences

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.

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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.

Government grants and payroll protection programs have been 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”) have provided benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments.

The NOW Program has provided eligible companies with reimbursement of labor costs as an incentive to retain employees on the payroll.

During fiscal year 2020, the Company received reimbursements under the NOW program and recognized a reduction in payroll costs of approximately $ 7.3 million, which were recorded as a $ 6.1 million reduction of selling, general and administrative expenses and a $ 1.2 million reduction of cost of sales in the consolidated statements of operations.

We applied a grant analogy method to recognize the reimbursements under the NOW program as the Company believes it is probable that the benefits received will not be repaid.

Revenue Recognition

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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.

During 2021, 2020 and 2019, approximately 98 % of the Company’s total revenue 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 for 2021, 2020 and 2019 of 2 % 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.

For projects underway, the Company recognized installation revenue over time based on a project cost input method 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 majority of these projects are completed within five 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.

3 unchanged sentences

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

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Performance Obligations

4 unchanged sentences

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.

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 accounts 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.

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 five days.

The Company’s largest installation customers are retail, education 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 each reporting period and recorded revenue in accordance with the accounting standards for projects which were underway as of the end of 2021, 2020 and 2019.

Costs to Obtain Contracts

13 unchanged sentences

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

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

The Company did no t hold any significant amounts of cash equivalents and short-term investments at January 2, 2022 and January 3, 2021.

Cash payments for interest amounted to approximately $ 22.9 million, $ 32.0 million, and $ 22.7 million for the years 2021, 2020 and 2019, respectively.

6 unchanged sentences

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.

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

7 unchanged sentences

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.

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 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.

1 unchanged sentence

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.

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 SG&A expenses in the accompanying consolidated statements of operations.

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.

3 unchanged sentences

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.

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

Property and Equipment and Long-Lived Assets

9 unchanged sentences

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

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Goodwill and Intangible Assets

2 unchanged sentences

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.

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

Trademark and tradename intangible assets acquired in connection with the nora acquisition are not subject to amortization, but are tested 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 the intangible asset below its carrying amount.

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 an impairment test as of the end of the first quarter.

The Company prepared valuations of the intangible assets using the present value of cash flows under the relief from royalty method, which were compared to the carrying value of intangible assets to determine whether any impairment existed.

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

The Company’s other intangible assets consist of developed technology that is amortized on a straight-line basis over the estimated useful life of 7 years.

Product Warranties

3 unchanged sentences

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.

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

Warranty and sales allowance reserves amounted to $ 2.7 million and $ 3.2 million as of January 2, 2022 and January 3, 2021, respectively, and are included in “Accrued Expenses” in the accompanying consolidated balance sheets.

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

7 unchanged sentences

For further information, see Note 17 entitled “Income Taxes.”

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Fair Values of Financial Instruments

8 unchanged sentences

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.

In the event of a divestiture of a foreign subsidiary, the related foreign currency translation results are reclassified from equity to income.

Foreign exchange translation gains (losses) were $( 40.1 ) million, $ 52.8 million, and $( 11.7 ) million for the years 2021, 2020 and 2019, respectively.

Earnings per Share

Basic earnings per share is computed based on the average number of common shares outstanding.

Basic earnings per share is computed based on the average number of common shares outstanding, including participating securities.

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.

17 unchanged sentences

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

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.

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Reclassifications

In fiscal year 2020, the Company made certain classification and presentation changes related to customer service and other costs.

In the first quarter of 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 and 2019 have been restated to conform to the current reportable segment structure.

See Note 20 entitled “Segment Information” for additional information.

In 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.

Beginning in 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

Reclassifications of the comparative prior year 2019 amounts as reported in the Company’s Annual Report on Form 10-K for the year ended December 29, 2019 have been made to conform to the current presentation as follows:

Fiscal Year 2019

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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.

All references herein to “2021,” “2020,” and “2019,” mean the fiscal years ended January 2, 2022, January 3, 2021, and December 29, 2019, respectively.

Fiscal year 2021 is comprised of 52 weeks, 2020 is comprised of 53 weeks, and 2019 is comprised of 52 weeks.

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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.

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.

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.

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

In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-10, “ Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

” The amendments in this update require annual disclosure of transactions with a government that provides assistance to an entity that is accounted for by applying a grant or contribution model by analogy.

Required disclosures include the nature of the transaction and the accounting policy applied to account for the transaction, the financial statement line items affected by the transaction and significant terms and conditions.

The amendments are effective for annual periods beginning after December 15, 2021.

Early adoption is permitted.

The Company adopted this ASU on January 2, 2022 and applied the disclosures retrospectively to transactions reflected in its financial statements at adoption, as permitted by the ASU.

See Note 1 entitled “Summary of Significant Accounting Policies” of this Form 10-K for required information as it pertains to government assistance received during the COVID-19 pandemic under the NOW program enacted in the Netherlands.

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848):

1 unchanged sentence

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.

As discussed in Note 9 entitled “Long-Term Debt”:

the Company adopted this ASU on December 9, 2021 in connection with the fourth amendment to the Syndicated Credit Facility, which among other things, provided amendments to replace the LIBOR interest rate benchmark applicable to loans with specified successor benchmark rates.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

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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.

Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 98 % of total revenue for 2021, 2020 and 2019.

The remaining 2 % of revenue was generated from the installation of carpet and other flooring-related material in 2021, 2020 and 2019.

Disaggregation of Revenue

4 unchanged sentences

Asia-Pacific 14.0 % 14.4 % 14.3 %

Revenue from the Company’s customers in the Americas corresponds to the AMS reportable segment, and the EAAA reportable segment includes revenue from the Europe and Asia-Pacific geographies.

See Note 20 entitled “Segment Information” for additional information.

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NOTE 4 – RECEIVABLES

4 unchanged sentences

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.

As of January 2, 2022 and January 3, 2021, the allowance for expected credit losses amounted to $ 5.0 million and $ 6.6 million, respectively, for all accounts receivable of the Company.

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NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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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.

The following table presents the carrying values and estimated fair values, including the level within the fair value hierarchy, of certain financial instruments:

January 2, 2022 January 3, 2021

Carrying Value Fair Value (Level 1) Fair Value (Level 2) Carrying Value Fair Value (Level 2)

(in thousands)

Company-owned life insurance $ 22,378 $ — $ 22,378 $ 22,048 $ 22,048

Deferred compensation investments 35,578 15,557 20,021 33,939 33,939

Borrowings under Syndicated Credit Facility (1)

$ 225,131 $ — $ 225,131 $ 285,215 $ 285,215

5.50% Senior Notes due 2028 (1)

300,000 — 315,039 300,000 315,999

(1) Carrying values exclude unamortized debt issuance costs and include amounts presented as current liabilities on the consolidated balance sheets.

Company-Owned Life Insurance

The fair value of Company-owned life insurance is measured on a readily determinable cash surrender value on a recurring basis.

Company-owned life insurance is recorded at fair value within other assets in the consolidated balance sheets.

Deferred Compensation Investments

Assets associated with the Company’s non-qualified savings plans are held in a rabbi trust and consist of investments in mutual funds and insurance contracts.

The fair value of the mutual funds is derived from quoted prices in active markets.

The fair value of the insurance contracts is based on observable inputs related to the performance measurement funds that shadow the deferral investment allocations made by participants in the non-qualified savings plans.

These investments are recorded at fair value within other assets in the consolidated balance sheets.

See Note 19 entitled “Employee Benefit Plans” for additional information on the Company’s non-qualified savings plans.

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Syndicated Credit Facility and Senior Notes

The Company’s liabilities for borrowings under the Syndicated Credit Facility (the “Facility”) and 5.50% Senior Notes due 2028 (the “Senior Notes”) are not recorded at fair value in the consolidated balance sheets.

The carrying value of borrowings under the Facility approximates fair value as the Facility bears variable interest rates that are similar to existing market rates.

The fair value of the Senior Notes is derived using quoted prices for similar instruments.

Other Assets and Liabilities

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.

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NOTE 6 – INVENTORIES

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Inventories, net $ 265,092 $ 228,725

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.

Reserves for inventory obsolescence amounted to $ 27.1 million and $ 35.0 million as of January 2, 2022 and January 3, 2021, respectively, and have been netted against amounts presented above.

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NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

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Land $ 17,237 $ 18,348

Buildings 176,702 148,833

Equipment (1)

Buildings and improvements 176,980 176,702

Equipment and furniture (1)

642,390 657,796

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(2) Includes $ 8.3 million and $ 3.8 million of accumulated amortization on leased equipment for 2021 and 2020, respectively.

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

As of January 2, 2022 and January 3, 2021, construction-in-progress was approximately $ 44.6 million and $ 43.0 million, respectively.

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NOTE 8 – ACCRUED EXPENSES

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Accrued Expenses $ 146,298 $ 105,739

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NOTE 9 – LONG-TERM DEBT

Long-term debt consisted of the following:

January 3, 2021 December 29, 2019

January 2, 2022 January 3, 2021

Outstanding Principal Interest Rate (1)

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Total debt 525,131 585,215

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

Unamortized debt issuance costs ( 7,073 ) ( 8,645 )

Total debt, net 518,058 576,570

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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.

At January 2, 2022, the 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 2, 2022, the Company had available borrowing capacity of $ 290.9 million under the revolving loan facility.

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

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• 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.

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

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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.

On December 9, 2021, the Company entered into a fourth amendment to its Facility.

The fourth amendment provided for, among other changes, the following amendments to the Facility, which became effective on December 16, 2021:

• amendments to replace the LIBOR interest rate benchmark applicable to loans and other extensions of credit under the Facility denominated in British Pounds sterling and Euros with specified successor benchmark rates;

• the amendment of certain provisions related to the implementation, use and administration of successor benchmark rates and to set forth certain borrowing requirements;

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

Interest Rates and Fees

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• incur indebtedness or contingent obligations;

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• sell or dispose of assets (in excess of certain specified amounts);

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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.

As of both January 2, 2022 and January 3, 2021, the Company had $ 1.6 million in letters of credit outstanding under the Facility.

Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings.

The amortization payments are due on the last day of the calendar quarter.

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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.

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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:

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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.

As of January 2, 2022 and January 3, 2021, there were no borrowings outstanding under these lines of credit.

Borrowing Costs

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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.

As of January 2, 2022 and January 3, 2021, the unamortized debt issuance costs recorded as a reduction of long-term debt were $ 7.1 million and $ 8.6 million, respectively.

Expenses related to such costs for the years 2021, 2020 and 2019 amounted to $ 1.6 million, $ 1.7 million, and $ 1.8 million, respectively.

Other deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of revolving debt, net of accumulated amortization, were $ 2.0 million and $ 1.3 million, as of January 3, 2021 and December 29, 2019, respectively.

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Other deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of revolving debt, net of accumulated amortization, were $ 1.6 million and $ 2.0 million, as of January 2, 2022 and January 3, 2021, respectively.

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

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Total long-term debt in the consolidated balance sheet includes a reduction for unamortized debt issuance costs of $ 7.1 million which are excluded from the maturities table above.

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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.

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

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.

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.

The termination resulted in a loss of $ 3.9 million recorded in interest expense in the consolidated statements of operations in 2020 as it was 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 2, 2022 and January 3, 2021, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps was $ 3.8 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 $ 2.8 million, before tax, 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.

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, from time to time, is 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.

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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.

Changes in fair value attributable to components other than exchange rates are 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 are reflected as a component of other comprehensive income (or other comprehensive loss).

As of January 2, 2022 and January 3, 2021, 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.

Our EAAA segment, from time to time, purchases 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.

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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.

As of January 2, 2022, the Company had no outstanding foreign currency options.

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

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Foreign currency options Other current assets 37 Accrued expenses —

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

Asset Derivatives as of December 29, 2019 Liability Derivatives as of December 29, 2019

Balance Sheet

Location Fair Value Balance Sheet

Location Fair Value

(in thousands)

Derivative instruments designated as hedging instruments:

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:

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

Foreign currency contracts gain $ — $ 468

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

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

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into net income (loss) are discussed in Note 21 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”

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Foreign currency options gain (loss) Other expense $ 408 $ 13 $ ( 627 )

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NOTE 11 – LEASES

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

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.

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.

As of January 2, 2022, there were no significant leases that had not commenced as of the end of fiscal year 2021.

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

The table below represents a summary of the balances recorded in the consolidated balance sheets related to our leases as of January 2, 2022 and January 3, 2021:

January 2, 2022 January 3, 2021

Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases

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Total finance lease liabilities $ 5,038 $ 4,184

2021 2020 2019

(in thousands)

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Total lease cost $ 28,182 $ 31,045 $ 30,909

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Other Supplemental Information

2021 2020 2019

(in thousands)

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Right-of-use assets obtained in exchange for new operating lease liabilities 13,330 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:

The table below presents the weighted average remaining lease terms and discount rates for finance and operating leases as of January 2, 2022 and January 3, 2021:

End of Fiscal Year

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Total lease liability $ 92,493 $ 5,038

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.

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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.

In the first quarter of 2021, the Company determined that it has two operating and reportable segments – namely AMS and EAAA.

See Note 20 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 (1) the Americas, (2) Europe, Middle East and Africa (“EMEA”), and (3) Asia-Pacific.

The Americas reporting unit is the same as the AMS reportable segment, and the EMEA and Asia-Pacific reporting units are one level below the EAAA reportable segment.

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.

We expected 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 would 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 performing the quantitative goodwill impairment testing in the first quarter of 2020, 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 operating segment level.

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

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As a result of the 2020 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.

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

As such, the goodwill impairment loss was allocated to our EMEA 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 2021, 2020 and 2019, 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.

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

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

In preparing the valuations, past, present and future expectations of performance were considered, including the ongoing impact of the COVID-19 pandemic in 2021 and 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.

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

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

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

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As of January 2, 2022, and January 3, 2021, the net carrying amount of goodwill was $ 147.0 million and $ 165.8 million, respectively.

The changes in the carrying amounts of goodwill attributable to each reportable segment for the years ended January 2, 2022 and January 3, 2021 are as follows:

AMS EAAA Total

(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

Goodwill balance, at December 29, 2019 $ 116,202 $ 141,237 $ 257,439

Impairment — ( 116,495 ) ( 116,495 )

Foreign currency translation 6,142 18,691 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.

Goodwill balance, at January 3, 2021 122,344 43,433 165,777

Foreign currency translation ( 13,839 ) ( 4,913 ) ( 18,752 )

Goodwill balance, at January 2, 2022 $ 108,505 $ 38,520 $ 147,025

In the first quarter of 2020, 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.

The impairment loss consisted of charges of $ 2.7 million and $ 2.1 million attributable to the AMS and EAAA reportable segments, respectively.

There were no indicators of additional intangible asset impairment as of the end of fiscal year 2021.

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.

The net carrying amount of indefinite-lived intangible assets was $ 56.1 million and $ 60.4 million as of January 2, 2022 and January 3, 2021, respectively.

The net carrying amount of intangible assets subject to amortization was $ 20.1 million and $ 27.3 million as of January 2, 2022 and January 3, 2021, respectively.

Amortization expense related to intangible assets during the years 2021, 2020 and 2019 was $ 5.6 million, $ 5.5 million and $ 5.9 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.

As of January 2, 2022 and January 3, 2021, accumulated amortization related to intangible assets, including impacts of changes in foreign currency exchange rates, was $ 23.0 million and $ 15.7 million, respectively.

Amortization expense related to intangible assets is expected to be approximately $ 6 million per year for fiscal years 2022 through 2024.

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NOTE 13 – PREFERRED STOCK

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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.

As of January 2, 2022 and January 3, 2021, there were no shares of preferred stock issued.

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NOTE 14 – SHAREHOLDERS’ EQUITY

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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 Company paid cash dividends totaling $ 0.04 per share in 2021, $ 0.095 per share in 2020, and $ 0.26 per share in 2019, to each share of Common Stock, including participating securities.

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.

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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.

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

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

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(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 — — — —

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

Net income — — — 55,234 — — —

Restricted stock issuances 429 43 6,066 — — — —

1 unchanged sentence

Cash dividends declared — — — ( 2,362 ) — — —

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

Compensation expense related to stock awards, net of forfeitures ( 38 ) ( 3 ) 5,233 — — — —

Pension liability adjustment — — — — 15,400 — —

Foreign currency translation adjustment — — — — — ( 40,110 ) —

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

Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge — — — — — — 3,468

Balance, at January 2, 2022 59,055 $ 5,905 $ 253,110 $ 261,434 $ ( 53,888 ) $ ( 100,441 ) $ ( 2,722 )

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SHARES COMMON STOCK ADDITIONAL

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

Net income — — — 79,200 — — —

Net loss — — — ( 71,929 ) — — —

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

2 unchanged sentences

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

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

Share repurchases ( 1,556 ) ( 156 ) ( 24,998 ) — — — —

Compensation expense related to stock awards, net of forfeitures ( 295 ) ( 31 ) ( 2,550 ) — — — —

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

1 unchanged sentence

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

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

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

SHARES COMMON STOCK ADDITIONAL

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

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

Compensation expense related to stock awards, net of forfeitures ( 270 ) ( 26 ) 4,638 — — — —

Share repurchases ( 1,556 ) ( 156 ) ( 24,998 ) — — — —

1 unchanged sentence

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

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

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 )

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.

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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.

The Company has a stock incentive 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.

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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.

In May 2015, the shareholders approved an amendment and restatement of the then-existing Omnibus Stock Incentive 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”).

In May 2020, the shareholders approved the adoption of a new 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).

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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

Exercised ( 7,500 ) 12.43

Forfeited or canceled ( 20,000 ) 12.43

Outstanding at January 3, 2021 — $ —

Exercisable at January 3, 2021 — $ —

All outstanding stock options vested prior to the end of 2013, and therefore, there was no stock option compensation expense during 2021, 2020 or 2019.

There were no stock options outstanding or exercisable as of January 2, 2022 or January 3, 2021.

Restricted Stock Awards

During fiscal years 2021, 2020 and 2019, the Company granted restricted stock awards totaling 428,400 , 308,100 , and 223,500 shares, respectively, of Common Stock.

The weighted average grant date fair value of restricted stock awards granted during 2021, 2020 and 2019 was $ 14.26 , $ 13.08 , and $ 17.54 , respectively.

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.

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

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The following table summarizes restricted stock outstanding as of January 2, 2022, as well as activity during the previous fiscal year:

Shares Weighted Average

Outstanding at December 29, 2019 468,200 $ 28.63

Restricted Shares Weighted Average

Outstanding at January 3, 2021 436,900 $ 24.73

Granted 428,400 14.26

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Performance Share Awards

In each of the years 2018-2020, the Company issued awards of performance shares to certain employees.

In each of the years 2021, 2020 and 2019, the Company issued awards of performance shares to certain employees.

These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years , subject to (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.

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

The Company evaluates the probability of achieving the performance-based goals as of the end of each reporting period and adjusts compensation expense based on this assessment.

The following table summarizes the performance shares outstanding as of January 2, 2022, as well as the activity during the year:

Shares Weighted

Performance Shares Weighted

Average Grant

Date Fair Value

Outstanding at December 29, 2019 512,000 $ 19.71

Outstanding at January 3, 2021 405,300 $ 16.94

Granted 375,800 13.94

Vested ( 164,300 ) 19.74

Forfeited or canceled ( 63,000 ) 21.43

1 unchanged sentence

Compensation expense (benefit) related to the performance shares for 2021, 2020 and 2019 was $ 1.7 million, $( 1.8 ) million and $ 5.4 million, respectively.

The Company has reduced its expense for performance shares forfeited during the period.

Unrecognized compensation expense related to these performance shares was approximately $ 8.7 million as of January 2, 2022.

1 unchanged sentence

The tax benefit recognized with respect to restricted stock and performance shares was $ 0.7 million, $ 0.6 million, and $ 1.4 million in 2021, 2020 and 2019, respectively.

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NOTE 15 – EARNINGS PER SHARE

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Undistributed earnings represent earnings that were available for distribution but were not distributed.

The following tables show distributed and undistributed earnings:

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:

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:

The following table shows the computation of basic and diluted EPS:

2021 2020 2019

(in thousands)

(in thousands, except per share data)

Net income (loss) $ 55,234 $ ( 71,929 ) $ 79,200

distributed and undistributed earnings available to participating securities ( 602 ) ( 42 ) ( 625 )

Distributed and undistributed earnings (loss) available to common shareholders $ 54,632 $ ( 71,971 ) $ 78,575

Weighted average shares outstanding 58,328 58,110 58,475

Participating securities 643 437 468

Shares for basic earnings per share 58,547 58,943 59,544

Shares for basic EPS 58,971 58,547 58,943

Dilutive effect of stock options — — 5

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.

Shares for diluted EPS 58,971 58,547 58,948

Basic EPS $ 0.94 $ ( 1.23 ) $ 1.34

Diluted EPS $ 0.94 $ ( 1.23 ) $ 1.34

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NOTE 16 – RESTRUCTURING AND OTHER CHARGES

Restructuring, asset impairment and other charges by reportable segment are presented as follows:

2021 2020 2019

(in thousands)

AMS $ ( 1 ) $ ( 288 ) $ 2,590

EAAA 3,622 ( 4,338 ) 10,357

Total restructuring, asset impairment and other charges $ 3,621 $ ( 4,626 ) $ 12,947

A summary of restructuring activities for the 2021, 2019 and 2018 restructuring plans is presented below:

Workforce Reduction Other Exit Costs

2019 Plan 2018 Plan 2019 Plan 2018 Plan Total

Workforce Reduction Other Exit Costs Asset Impairment

2021 Plan 2019 Plan 2018 Plan 2019 Plan 2018 Plan 2021 Plan Total

(in thousands)

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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

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Deductions — ( 3,866 ) ( 1,675 ) ( 139 ) ( 75 ) — ( 5,755 )

Charged to other accounts — — 49 — 49

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

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

Charged to expenses 2,257 ( 286 ) — — — 1,650 3,621

Deductions — ( 681 ) — — — — ( 681 )

Charged to other accounts — — — — — ( 1,650 ) ( 1,650 )

Balance, at January 2, 2022 $ 2,257 $ 97 $ — $ — $ — $ — $ 2,354

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.

For 2021, the Company recorded restructuring and asset impairment charges of $ 3.6 million as a result of the 2021 restructuring plan described below, net of a reduction of $ 0.3 million of previously recognized restructuring charges under the 2019 plan due to changes in expected cash payments.

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

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

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

As of January 2, 2022, the total restructuring reserve was $ 2.4 million for the 2021 and 2019 restructuring plans.

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.

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 (comprised of $ 2.8 million attributable to the AMS reportable segment and $ 2.2 million attributable to the EAAA reportable segment) 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.

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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, anticipated to occur 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 bonus costs of approximately $ 0.5 million will be recognized through the end of 2022 as earned over the requisite service periods.

Restructuring charges of $ 3.9 million comprised of severance and asset impairment charges were recognized during 2021 within the EAAA reportable segment.

The restructuring plan is expected to result in 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 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 consolidated statement of operations in 2022, with the remaining portion of the annualized savings expected to be realized in 2023.

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).

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 (comprised of $ 1.1 million attributable to the AMS reportable segment and $ 7.9 million attributable to the EAAA reportable segment).

The charge was 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.

In 2021 and 2020, the Company recorded reductions of $ 0.3 million and $ 3.7 million, respectively, of the previously recognized charges due to changes in expected cash payments for employee severance.

As of January 2, 2022, cumulative charges under the 2019 restructuring plan, net of reductions of previously recognized charges, were $ 0.8 million within the AMS reportable segment and $ 4.2 million within the EAAA reportable segment.

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

A portion of the annualized savings was realized on the consolidated statement of operations in 2020, with the remaining portion of the annualized savings realized in 2021.

2018 Restructuring Plan

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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.

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 (comprised of $ 7.7 million attributable to the AMS reportable segment and $ 12.8 million attributable to the EAAA reportable segment).

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).

1 unchanged sentence

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

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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.

1 unchanged sentence

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.

As of January 2, 2022, cumulative charges under the 2018 restructuring plan, net of reductions of previously recognized charges, were $ 6.4 million within the AMS reportable segment and $ 12.1 million within the EAAA reportable segment.

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

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NOTE 17 – INCOME TAXES

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Total income tax expense (benefit) $ 17,399 $ ( 7,491 ) $ 22,616

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The Company’s effective tax rate was 24.0 %, 9.4 % and 22.2 % for fiscal years 2021, 2020 and 2019, respectively.

10 unchanged sentences

Tax effects of Company-owned life insurance ( 762 ) ( 898 ) ( 636 )

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 1,219 748 ( 183 )

4 unchanged sentences

Goodwill impairment — 24,464 —

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

Unrecognized tax benefits ( 2,663 ) ( 14,962 ) ( 3,324 )

Other 592 130 455

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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.

For the tax year ended January 3, 2021, the Company deferred $ 4.1 million in payroll taxes under the CARES Act which was paid as of January 2, 2022.

In addition, for the year ended January 3, 2021, the Company benefited from the relaxed 163(j) limitation and the technical correction related to depreciation of leasehold improvements, both of which did not have a material impact on the Company’s effective tax rate for that year.

Some of the provisions of the CARES Act, including the deferral of certain payroll taxes and the relaxed 163(j) limitation, are not applicable for tax years after 2020, and as a result the Company did not benefit from these provisions for the tax year ended January 2, 2022.

In addition, the Company did not materially benefit from the provisions of the CARES Act that remained in effect during the tax year ended January 2, 2022.

Deferred income taxes for the years ended January 2, 2022 and January 3, 2021, 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.

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The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

3 unchanged sentences

Lease liability $ 25,426 $ 28,094

Net operating loss carryforwards 4,031 3,090

Net operating loss and interest carryforwards 5,962 4,031

Federal tax credit carryforwards 10,054 10,412

3 unchanged sentences

Prepaids, accruals and reserves 8,777 3,659

Capitalized costs 4,805 —

Pensions 6,431 11,485

12 unchanged sentences

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 2, 2022.

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.

Beginning in 2018, the Company has elected to account for tax effects of the global intangible low-taxed income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Internal Revenue Code Section 163(j) interest limitation (“Interest Limitation”) and base-erosion and anti-abuse tax (“BEAT”) provisions included in the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) in the period when incurred, and therefore has not provided any deferred tax impacts for these provisions in its consolidated financial statements.

As of January 2, 2022, the Company 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.

1 unchanged sentence

In addition, as of January 2, 2022, the Company has approximately $ 25.7 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.

As of January 2, 2022, and January 3, 2021, non-current deferred tax assets were reduced by approximately $ 2.8 million and $ 3.0 million, respectively, of unrecognized tax benefits.

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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.

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

In September of 2021, as part of an overall restructuring plan, the Company made the decision to close its manufacturing facility in Thailand.

As a result, the Company is no longer asserting that the undistributed earnings in its Thailand subsidiaries are permanently reinvested.

The Company provided for U.S.

income taxes and foreign withholding taxes on these earnings at January 2, 2022.

Although the Tax Act 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.

9 unchanged sentences

The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2010 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.

As a result of an audit of the Company’s U.K.

subsidiaries, Her Majesty’s Revenue & Customs (“HMRC”) issued notices of amendment to the Company’s U.K.

tax returns for the years 2012 through 2017.

Final assessments including the adjustments have not been issued.

The adjustments result from the interest rate applied in the intra-group financing arrangement between a Company subsidiary in the U.K.

and the Netherlands.

In April of 2021, the Company filed requests with both the Competent Authority in the Netherlands and in the U.K.

to initiate a mutual agreement procedure (“MAP”) 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 these adjustments 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.

As of January 2, 2022, and January 3, 2021, the Company had $ 8.2 million and $ 10.8 million, respectively, of unrecognized tax benefits.

For the years ended January 2, 2022 and January 3, 2021, the Company recognized as income tax benefits $ 2.7 million and $ 15.0 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.

It is reasonably possible that approximately $ 2.5 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations.

If any of the $ 8.2 million of unrecognized tax benefits as of January 2, 2022 are recognized, there would be a favorable impact on the Company’s effective tax rate of approximately $ 7.5 million in future periods.

3 unchanged sentences

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.

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

6 unchanged sentences

Decreases related to lapse of applicable statute of limitations ( 2,309 ) ( 14,992 ) ( 1,266 )

Changes due to settlements ( 836 ) — —

Changes due to foreign currency translation 103 171 7

Balance at end of year $ 8,220 $ 10,799 $ 25,486

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NOTE 18 – COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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

6 unchanged sentences

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 asserted 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).

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

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 Court granted judgment on the pleadings in favor of the Company on Mr.

Gould’s putative claim of negligent investigation, and Mr.

Gould’s defamation claims were dismissed with prejudice by stipulation of the parties.

The Company filed a motion for summary judgment on Mr.

Gould’s remaining claims.

On February 9, 2022, the U.S.

Magistrate Judge overseeing the motion for summary judgment issued a Final Report and Recommendation that the Company’s motion for summary judgment be granted on all remaining claims, and each party has since filed objections to certain aspects of the report and recommendation.

The motion for summary judgement remains pending with the Court.

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

Putative Class Action Lawsuit

As previously reported, the Securities & Exchange Commission (the “SEC”) conducted 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.

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.

4 unchanged sentences

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.

In the putative class action lawsuit, the Court has appointed a lead plaintiff, which filed an Amended Complaint that, among other things, added the Company’s former chief financial officer as a defendant.

As in the original complaint, the allegations in the Amended Complaint relate to the subject matter of the concluded SEC investigation described above.

The Company has filed a motion to dismiss the Amended Complaint in its entirety, and that motion is pending with the Court.

The Company believes the putative class action is without merit and that the Company has good defenses to it.

The Company intends to defend itself vigorously against the action.

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NOTE 19 – EMPLOYEE BENEFIT PLANS

12 unchanged sentences

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

Deferred compensation in connection with the NSPs totaled $ 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.

The deferred compensation liability in connection with the NSPs totaled $ 34.2 million and $ 33.1 million at January 2, 2022 and January 3, 2021, respectively.

The Company invests the deferrals in insurance instruments with readily determinable cash surrender values and in exchange traded mutual funds beginning in fiscal 2021.

The value of the insurance instruments was $ 20.0 million and $ 33.9 million as of January 2, 2022 and January 3, 2021, respectively.

The fair value of the mutual fund investments at January 2, 2022 was $ 15.6 million.

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

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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.

As discussed below, on December 31, 2019, a plan amendment was executed to eliminate future service accruals in our defined benefit pension plan in the Netherlands (the “Dutch Plan”), which resulted in a curtailment of the plan.

The Dutch Plan remains in existence and continues 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.

During 2021 and 2020, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 2.6 million and $ 2.5 million, respectively.

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

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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”).

In connection with the nora acquisition in 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.

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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.

The Dutch Plan remains in existence and continues to pay vested benefits.

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

Participants in the Dutch Plan no longer accrue benefits under the plan after December 31, 2019 and 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.

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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 Company will fund the cost to guarantee vested benefits and this amount is 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 loss 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.

This amount will be reclassified out of accumulated other comprehensive loss 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 loss, 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 2, 2022, the under-funded status of the Dutch Plan of $ 4.5 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.

Pension expense for our three European defined benefit plans was $ 2.5 million, $ 2.5 million, and $ 2.3 million for the years 2021, 2020 and 2019, respectively.

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

1 unchanged sentence

In the next fiscal year, approximately $ 1.4 million will be reclassified from accumulated other comprehensive loss into net periodic benefit cost.

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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:

6 unchanged sentences

Actuarial loss (gain) ( 19,723 ) 31,618

Curtailment gain — ( 2,421 )

Member contributions — 221

Currency translation adjustment ( 12,747 ) 24,917

7 unchanged sentences

Plan assets, end of year $ 285,600 $ 303,531

Reconciliation to balance sheet

Funded status benefit asset (liability) $ ( 60,912 ) $ ( 48,391 )

Amounts recognized in accumulated other comprehensive income, after tax:

Funded status $ ( 38,808 ) $ ( 60,912 )

Amounts recognized in consolidated balance sheets:

Other assets $ 10,975 $ —

Current liabilities ( 1,049 ) ( 1,089 )

Other long-term liabilities, net of current portion ( 48,734 ) ( 59,823 )

Under funded status at end of fiscal year $ ( 38,808 ) $ ( 60,912 )

Amounts recognized in accumulated other comprehensive loss, after tax:

Unrecognized actuarial loss $ 45,209 $ 58,257

2 unchanged sentences

Accumulated benefit obligation $ 324,408 $ 364,443

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.

As of January 2, 2022, 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.

The accumulated benefit obligation of the Dutch Plan exceeded plan assets as of January 2, 2022.

The nora Plan is an unfunded defined benefit plan and the accumulated benefit obligation exceeded plan assets as of January 2, 2022.

The following table summarizes this information as of January 2, 2022 and January 3, 2021.

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End of Fiscal Year

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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.

During 2021, other comprehensive loss was impacted by a net gain of approximately $ 11.8 million (net of $ 3.9 million of tax), comprised of actuarial gain of approximately $ 10.3 million (net of $ 3.4 million of tax) and amortization of loss of $ 1.5 million (net of $ 0.5 million of tax).

2021 2020 2019

6 unchanged sentences

Rate of compensation — % — % 1.75 %

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The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class.

3 unchanged sentences

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.

The plans’ net assets did not include the Company’s own stock at January 2, 2022 or January 3, 2021.

Dutch Plan Assets and Indexation Benefit

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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.

The Dutch 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 Dutch 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.

After the Dutch 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.

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100 % 100 % 100 %

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

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The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value, as of January 2, 2022 and January 3, 2021.

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.

As noted above, the Dutch 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 2, 2022

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Total $ 92,629 $ 192,971 $ 285,600

Pension Plan Assets by Category as of December 29, 2019

Pension Plan Assets by Category as of January 3, 2021

Dutch Plan UK Plan Total

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

(2) Other investments is comprised of insurance contracts.

(2) Other investments are 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.

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With the exception of the Dutch Plan assets as discussed above, the assets identified as level 3 above in 2021 and 2020 relate to insured annuities and direct lending assets held by the UK Plan.

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Actual return on plan assets (1)

( 10,189 ) 6,767

Purchases, sales and settlements, net 440 437

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Balance of level 3 assets, end of year $ 121,126 $ 137,623

(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.

(1) Includes $( 6.6 ) million and $ 10.1 million for 2021 and 2020, respectively, of unrealized (losses) and gains recognized during the period in other comprehensive income (loss) for assets held at year end.

During 2022, the Company expects to contribute $ 4.1 million to the plans.

14 unchanged sentences

The Company uses a year-end measurement date for the domestic SCP.

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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.

There is no service cost component of the change in benefit obligation in 2021 and 2020 as there are no longer any participants accruing benefits in the plan.

(in thousands)

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Total benefit obligation $ 30,053 $ 33,834

The components of the amounts in accumulated other comprehensive income, after tax, are as follows:

The components of the amounts in accumulated other comprehensive loss, after tax, are as follows:

(in thousands)

Unrecognized actuarial loss $ 8,679 $ 11,031

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 accumulated benefit obligation related to the SCP was $ 30.1 million and $ 33.8 million as of January 2, 2022 and January 3, 2021, respectively.

The SCP is currently unfunded;

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Discount rate 2.15 % 3.05 % 4.10 %

Rate of compensation — — —

Assumptions used to determine benefit obligations:

Discount rate 2.65 % 2.15 % 3.05 %

Rate of compensation — — —

Components of net periodic benefit cost:

Service cost $ — $ — $ —

Interest cost $ 706 $ 938 $ 1,154

1 unchanged sentence

Net periodic benefit cost $ 1,449 $ 1,496 $ 1,529

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.

The changes in other comprehensive loss during 2021 related to the SCP as a result of plan activity was a net gain of approximately $ 2.3 million (net of $ 1.0 million of tax), primarily comprised of a net gain during the period of $ 1.8 million (net of $ 0.8 million of tax) and amortization of loss of $ 0.5 million (net of $ 0.2 million of tax).

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During 2021, the Company contributed $ 2.0 million in the form of direct benefit payments for its domestic SCP.

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2027-2031 8,886

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.

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.

(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.

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NOTE 20 – 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;

(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:

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 2021, 2020 and 2019 were $ 78.1 million, $ 71.5 million and $ 71.3 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 years 2020 and 2019 have been restated to reflect our new reportable segment structure.

2021 2020 2019

(in thousands)

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

Europe 351,287 393,194 319,677

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

AMS $ 651,216 $ 593,418 $ 757,112

EAAA 549,182 509,844 585,917

Total net sales $ 1,200,398 $ 1,103,262 $ 1,343,029

AMS $ 85,014 $ 89,097 $ 120,921

EAAA 37,268 21,403 28,832

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

AMS $ 17,963 $ 17,164 $ 15,884

EAAA 28,382 28,756 29,048

Total depreciation and amortization $ 46,345 $ 45,920 $ 44,932

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

End of Fiscal Year

(in thousands)

Americas $ 800,068 $ 769,301

Europe 499,186 567,866

Asia-Pacific 183,109 210,142

AMS $ 652,423 $ 800,068

EAAA 691,844 682,295

Total segment assets 1,344,267 1,482,363

3 unchanged sentences

Total assets in the table above include operating lease right-of-use assets for fiscal years 2021 and 2020.

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

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

End of Fiscal Year

1 unchanged sentence

(in thousands)

Americas $ 11,945 $ 20,126

Europe 65,473 66,038

Asia-Pacific 8,792 8,259

AMS $ 12,662 $ 11,945

EAAA 67,741 74,265

Total segment operating lease right-of-use assets 80,403 86,210

1 unchanged sentence

Total operating lease right-of-use assets $ 90,561 $ 98,013

Reconciliations of operating income (loss) to income (loss) before income tax expense and segment AOI are presented as follows:

2021 2020 2019

(in thousands)

AMS operating income $ 81,445 $ 73,234 $ 118,332

EAAA operating income (loss) 23,352 ( 112,521 ) 12,571

Consolidated operating income (loss) 104,797 ( 39,287 ) 130,903

Interest expense 29,681 29,244 25,656

Other expense 2,483 10,889 3,431

Income (loss) before income tax expense $ 72,633 $ ( 79,420 ) $ 101,816

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2021 2020 2019

AMS EAAA AMS EAAA AMS EAAA

(in thousands)

Operating income (loss) $ 81,445 $ 23,352 $ 73,234 $ ( 112,521 ) $ 118,332 $ 12,571

Purchase accounting amortization — 5,636 — 5,457 — 5,903

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 3,569 8,280 9,722 6,943 2,589 10,358

SEC fine — — 2,689 2,311 — —

AOI $ 85,014 $ 37,268 $ 89,097 $ 21,403 $ 120,921 $ 28,832

The Company has a large and diverse customer base, which includes numerous customers located in foreign countries.

2 unchanged sentences

These sales were primarily to customers in Europe, Canada, Asia, Australia and Latin America.

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.

Other than the United States in 2021, 2020 and 2019, and Germany in 2020, 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:

16 unchanged sentences

(2) Long-lived assets attributed to geographic areas are based on the physical location of the asset.

2020 includes $ 1.8 million and $ 4.3 million of leased equipment in the United States and foreign countries, respectively.

2019 includes $ 0.6 million and $ 4.4 million of leased equipment in the United States and foreign countries, respectively.

NOTE 22 – QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)

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

(in thousands, except per share data)

Net sales $ 288,169 $ 259,504 $ 278,642 $ 276,947

Gross profit 114,311 97,294 102,162 96,807

Net income (loss) ( 102,167 ) 4,709 5,913 19,616

Basic income (loss) per share $ ( 1.75 ) $ 0.08 $ 0.10 $ 0.33

Diluted income (loss) per share $ ( 1.75 ) $ 0.08 $ 0.10 $ 0.33

High $ 17.57 $ 11.04 $ 8.94 $ 10.53

Low $ 5.06 $ 6.77 $ 5.88 $ 5.92

(1) Results for the first quarter of 2020 include purchase accounting amortization of $ 1.3 million, goodwill and intangible asset impairment charge of $ 121.3 million, impact of change in equity award forfeiture accounting of $ 1.4 million, and restructuring charges of $( 1.1 ) million.

(2) Results for the second quarter of 2020 include purchase accounting amortization of $ 1.3 million, severance, lease exit and asset impairment charges of $ 8.8 million, and a warehouse fire loss of $ 4.2 million.

(3) Results for the third quarter of 2020 include purchase accounting amortization of $ 1.4 million, severance charges and restructuring adjustments of $ 5.8 million, and an SEC fine of $ 5.0 million.

(4) Results for the fourth quarter of 2020 include purchase accounting amortization of $ 1.4 million, severance, lease exit, restructuring adjustments and asset impairment charges of $ 3.2 million, loss on extinguishment of debt of $ 3.6 million, loss on discontinuance of interest rate swaps of $ 3.9 million, and recognition of income tax benefits related to uncertain tax positions taken in prior years of $ 12.7 million.

FISCAL YEAR 2019

(in thousands, except per share data)

Net sales $ 297,688 $ 357,507 $ 348,352 $ 339,482

Gross profit (5)

116,522 140,730 137,744 137,971

Net income 7,059 29,499 26,210 16,432

Basic income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28

Diluted income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28

High $ 19.40 $ 17.22 $ 15.84 $ 17.68

Low $ 13.87 $ 14.30 $ 10.37 $ 13.32

(1) Results for the first quarter of 2019 include purchase accounting amortization of $ 1.9 million.

(2) 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.

2021 includes $ 1.6 million and $ 4.9 million of leased equipment, net of accumulated amortization, in the United States and foreign countries, respectively.

2020 includes $ 1.8 million and $ 4.3 million of leased equipment, net of accumulated amortization, in the United States and foreign countries, respectively.

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NOTE 21 – 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:

Amounts reclassified out of accumulated other comprehensive loss (“AOCI”), before tax, to the consolidated statements of operations for the fiscal years 2021, 2020 and 2019, are reflected in the tables below:

Statement of Operations Location 2021 2020 2019

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Foreign currency contracts loss Cost of sales $ — $ — $ ( 450 )

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 )

Interest rate swap contracts gain (loss) (1)

Interest expense ( 4,861 ) ( 7,287 ) 151

Amortization of benefit plan net actuarial losses and prior service cost (2)

Other expense ( 2,825 ) ( 2,213 ) ( 976 )

Total loss reclassified from AOCI $ ( 7,686 ) $ ( 9,500 ) $ ( 1,275 )

(1) Other comprehensive income (loss) includes tax of $ 1.4 million, $( 2.5 ) million and $( 1.6 ) million for 2021, 2020 and 2019, respectively, related to cash flow hedges.

(2) See Note 19 entitled “Employee Benefit Plans” for the tax effects in other comprehensive income (loss) related to the Company’s defined benefit plans.

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Report of Independent Registered Public Accounting Firm

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Interface, Inc.

and Subsidiaries

Atlanta, Georgia

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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.

(the “Company”) as of January 2, 2022 and January 3, 2021, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 2, 2022, 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 2, 2022 and January 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2022 , 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 2, 2022, 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 2, 2022 expressed an unqualified opinion thereon.

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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.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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.

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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.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

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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 2021, the Company performed the annual impairment test for all reporting units, and no impairment was recognized as a result of the assessment.

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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.

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We identified the estimate of the fair value of the EMEA reporting unit during the goodwill impairment assessment 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.

(i) this reporting unit had relatively lower excess fair value over carrying value and, therefore, the fair value estimates were sensitive to changes in the significant assumptions such as projected revenues, gross margins, earnings, terminal growth rate, and the discount rate included in the income approach, (ii) the determination of fair value under the market approach includes assumptions utilized by management for which changes to these assumptions can have a significant impact on the fair value of the reporting unit, and (iii) auditing management’s valuation methods and assumptions utilized in estimating the fair value of the EMEA reporting unit involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address this matter, including the extent of specialized skill or knowledge needed.

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 design and operating effectiveness of controls relating to management’s forecasting process, including controls over management’s review of the significant assumptions described above.

• Evaluating the reasonableness of the significant assumptions described above used in management’s income approach analysis by comparing them to prior period forecasts, historical operating performance, the Company’s projected budget, peer company historical operating performance, publicly available industry analyst projections, and internal and external communications made by the Company.

• 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.

• Utilizing personnel with specialized knowledge and skill of valuation techniques to assist in:

(i) evaluating the methodologies used by management to determine the fair value of the EMEA reporting unit including the weighting of the income and market approaches (ii) testing the mathematical accuracy of the Company’s calculations, (iii) evaluating the reasonableness of assumptions used in the income approach including the discount rate and terminal growth rate, (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;

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March 2, 2022

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Report of Independent Registered Public Accounting Firm

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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”).

We have audited Interface, Inc.’s (the “Company’s”) internal control over financial reporting as of January 2, 2022, 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 2, 2022, 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.

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 2, 2022 and January 3, 2021, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 2, 2022, and the related notes and schedule and our report dated March 2, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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March 2, 2022

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data