What changed in this filing

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Item 1A. Risk Factors

2023-03-01 compared with 2022-03-02 · 167 added, 126 removed, 112 unchanged (72% of the section changed)

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Any or all of the following risk factors could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risk Factors Related to our Business and Operations

We compete with a large number of manufacturers in the highly competitive floorcovering products market, and some of these competitors have greater financial resources than we do.

We may face challenges competing on price, making investments in our business, or competing on product design or sustainability.

The floorcovering industry is highly competitive.

Globally, we compete for sales of floorcovering products with other carpet manufacturers and manufacturers of other types of floorcovering.

Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry.

Moreover, some of our competitors are adding manufacturing capacity into the industry throughout the globe which could increase the amount of supply in the market.

Increased capacity at our competitors could result in pricing pressure on our products and less demand for our products, thus adversely affecting both revenues and profitability.

Some of our competitors, including a number of large diversified domestic and foreign companies who manufacture modular carpet and resilient flooring as one segment of their business, have greater financial resources than we do.

Competing effectively may require us to make additional investments in our product development efforts, manufacturing facilities, distribution network, and sales and marketing activities.

In addition, we often compete on design preferences.

Our customers’ design preferences may evolve or change before we adapt quickly enough to those changes or before we recognize those changes have happened in the marketplace.

If this occurs, it could negatively affect our sales as our customers choose other product offerings that more closely align with their design preferences.

Moreover, as our competitors improve the sustainability attributes of their products and operations, or if our competitors market the sustainability attributes of their products or operations more effectively than we do, it could negatively affect the degree to which we differentiate from our competitors on those attributes which could negatively affect our ability to compete and gain those sales as customers choose product offerings from our competitors instead of our product offerings.

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

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

Our review is conducted during the fourth quarter of the year, unless there has been a triggering event prescribed by applicable accounting rules that warrants an earlier interim testing for possible goodwill impairment.

A future goodwill impairment test may result in a future non-cash adjustment, which could adversely affect our earnings for any such future period.

We recorded goodwill and intangible asset impairment charges of $36.2 million in the fourth quarter of 2022 and $121.3 million in the first quarter of 2020.

The 2022 impairment charge was primarily a result of macroeconomic conditions, such as inflation, rising interest rates and the weakening of the Euro against the U.S.

dollar causing a negative impact to our revenue and operating income in our EMEA goodwill reporting unit.

The 2020 impairment charge was primarily a result of the expected duration of the COVID-19 pandemic and its anticipated negative impact to our revenue and operating income.

Future impairment charges could result if these macroeconomic conditions or other negative market events or conditions continue to impact our operations.

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

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

In addition, we rely significantly on the leadership that David Oakey of David Oakey Designs provides to our internal design staff.

Specifically, David Oakey Designs provides product design/production engineering services to us under an exclusive consulting contract that contains non-competition covenants.

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

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

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

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

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

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

Many of our professional workers continue to work from home, initially as part of our COVID-19 protocols and more recently as part of our flexible working arrangement policies.

As a result, we may experience higher levels of attrition within our professional workforce in the future.

We may lose the services of key personnel for a variety of reasons, including if our compensation programs become uncompetitive in the relevant markets for our employees and service providers, or if the Company undergoes significant disruptive change, including economic downturns.

The loss of key personnel with a great deal of knowledge, training and experience — particularly in the areas of sales, marketing, operations, product design and management — could have an adverse impact on our business.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The market price of our common stock has been volatile in the past and may continue to be volatile going forward.

Such volatility may cause precipitous drops in the price of our common stock on the Nasdaq Global Select Market and may cause your investment in our common stock to lose significant value.

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

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

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

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

In the first quarter of 2022, we permanently closed our carpet tile manufacturing facility in Thailand and transferred that production volume to other existing manufacturing operations in China and Australia.

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

We are also making significant investments and modifications to our manufacturing facilities, processes, product compositions, and product construction including but not limited to the production of our CQuest™ carpet tile backings.

These changes can be disruptive.

There is also no guarantee that our CQuest™ backings will not fail to perform as expected and will not increase warranty claims or customer complaints.

These efforts may also not yield the financial returns and improvements in the business that we hope to achieve from them.

While these changes are intended to yield stronger financial results, they could potentially impact our financial results in negative ways due to project delays, business disruption as new facilities and equipment come online, increase customer complaints, or increase warranty claims;

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

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

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

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

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

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

We rely heavily on information technology systems—both software and computer hardware—to operate our business.

We rely on these systems to, among other things:

• facilitate and plan the purchase, management and distribution of, and payment for, inventory and raw materials;

• control our production processes;

• manage and monitor our distribution network and logistics;

• receive, process and ship orders;

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

• manage financial reporting;

• manage payroll and human resources information.

Our IT systems may be disrupted or fail for a number of reasons, including:

• natural disasters, like fires;

• power loss;

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

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

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

These disruptions may lead to production or shipping stoppages, which may in turn lead to material revenue loss and reputational harm.

Despite our security design and internal controls, our IT systems have in the past experienced, and may in the future become subject to, attempts by unauthorized third parties to access and exfiltrate confidential information, manipulate data or disrupt our operations.

In November 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems (the “Cyber Event”).

In response, we promptly shut down certain systems, including shipping, inventory management and production systems and engaged forensic experts to evaluate the extent of the Cyber Event and its disruption to our operations.

While the investigation of the Cyber Event by our forensic experts is still ongoing and our operations have fully resumed, we estimate fiscal year 2022 revenues were adversely affected by approximately $8 million due to lost sales.

In fiscal 2022, in connection with the Cyber Event, we incurred approximately $5 million of idle plant costs, direct labor costs during the period our manufacturing facilities were idle and third-party remediation costs.

We have insurance and anticipate that a portion of our financial losses related to the Cyber Event will ultimately be recovered by insurance.

Following the Cyber Event, we implemented measures to enhance our cybersecurity protections against, and reduce the potential of, any future cybersecurity attack.

We expect to incur ongoing costs to enhance cybersecurity and plan to take further steps to prevent unauthorized access to, or manipulation of, our systems and data.

However, there is no guarantee that these enhancements and steps will be adequate to mitigate future losses due to IT system disruptions, and we may incur significant expense in correcting and recovering from future disruptions.

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

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

The impact of potential changes to environmental laws and regulations and industry standards regarding climate change could lead to unforeseen disruptions to our business operations.

Addressing the effects of climate change has taken on increased importance throughout the world.

The continued efforts to combat climate change could include more restrictive federal, state, and foreign environmental laws and regulations, heightened industry standards, or other mitigation measures that may have a material adverse effect on our global operations.

These initiatives could, for example, increase the cost of obtaining raw materials for production of our products, increase the cost of energy for our manufacturing processes, and negatively impact our supply chain and capital expenditures.

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Risk Factors Related to COVID-19

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

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

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

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

The COVID-19 pandemic has impacted areas where we operate and sell our products and services.

The COVID-19 pandemic or a similar public health emergency in the future could have a material adverse effect on:

our ability to operate;

our ability to keep employees safe from the pandemic;

our ability to keep employees safe from public health risks;

our results of operations, financial condition, liquidity and capital investments;

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and our ability to gain financing in the capital markets.

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

Public health organizations have recommended, and many governments have implemented, measures from time to time during the COVID-19 pandemic to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements.

Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as:

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decreased employee availability;

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

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

increased overtime and temporary labor costs;

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

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

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

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

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Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near-term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

A public health emergency that occurs in the future could involve similar uncertainties.

Sales of our principal products have been and may continue to be affected by the COVID-19 pandemic, adverse economic cycles, and effects in the new construction market and renovation market.

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This activity is cyclical and has been affected by the strength of a country’s or region’s general economy, prevailing interest rates and other factors that lead to cost control measures or reduction in the use of space by businesses and other users of commercial or institutional space.

For example, the COVID-19 pandemic may have cyclical and structural impacts on this activity resulting from job losses for office workers, reductions in the use of coworking spaces, and increases in the number of people working from home.

As the COVID-19 pandemic continues, the future of the office, and what the office of the future might look like, is being highly debated by senior executives, commercial real estate firms, architects, designers and other global experts which could adversely affect the amount of money that customers spend on our products.

For example, the COVID-19 pandemic has had and may continue to have cyclical and structural impacts on the renovation of commercial and institutional buildings due to reductions in the use of work spaces, increases in office worker job losses and increases in the number of people working from home.

The COVID-19 pandemic has impacted the corporate office market and what the office of the future might look like and continues to be highly debated by senior executives, commercial real estate firms, architects, designers and other global experts, which could adversely affect the amount of money that customers spend on our products.

In addition, the effects of cyclicality and other factors affecting the corporate office segment have traditionally tended to be more pronounced than the effects on other market segments.

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

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

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

A future goodwill impairment test may result in a future non-cash adjustment, which could adversely affect our earnings for any such future period.

We recorded a goodwill and intangible asset impairment loss of $121.3 million in the first quarter of 2020 primarily as a result of the expected duration of the COVID-19 pandemic and its anticipated negative impact to our revenue and operating income.

Future impairment charges could result if these expectations change or the COVID-19 pandemic continues for an extended period.

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International Risk Factors

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

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

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

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

In 2022, approximately 47% of our net sales and a significant portion of our production were outside the United States, primarily in Europe and Asia-Pacific.

International operations carry certain risks and associated costs, such as:

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

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

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

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

dollars (approximately half of 2021 net sales), which subjects us to the risks inherent in currency translations.

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

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

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

The conflict between Russia and Ukraine could adversely affect our business, results of operations and financial position.

Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks arising from the conflict between Russia and Ukraine, may adversely affect our business, results of operations and financial position.

While we permanently closed our operations in Russia in the third quarter of 2022, the broader consequences of this conflict and the extent of its effects on us as well as the global economy cannot be predicted.

These consequences include or may include government sanctions, embargoes, unstable energy markets, regional instability, geopolitical shifts, potential retaliatory action by the Russian government against companies or other countries, and increased tensions between Russia and the United States or other countries in which we operate.

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Historically, Russia was a key supplier of natural gas, oil, and other raw materials to European countries.

We have substantial manufacturing operations in Europe (including Germany, the Netherlands, and the United Kingdom), and we have key suppliers in Europe, which rely upon natural gas, oil, and other raw materials to operate.

Our sole rubber flooring plant is in Germany, and our primary European carpet tile plant is in the Netherlands.

Any disruption in the supply of natural gas, oil, or other raw materials from Russia to Europe could adversely affect our ability to operate our business, our results of operations and our financial position, or adversely affect the ability of our key suppliers to meet our raw material requirements.

In particular, the currently reduced Russian exports of natural gas to Europe may materially impede our European manufacturing operations and may result in higher energy costs to operate our facilities.

Our customers’ businesses, results of operations and financial positions also could be adversely impacted by the conflict in Ukraine, which could reduce their spending on our products.

The conflict between Russia and Ukraine is ongoing and its duration is uncertain.

We cannot predict the outcome of the conflict or its impact on the broader region, as the conflict and related government actions are evolving and are beyond our control.

To the extent the conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening other risks disclosed in our Annual Report, any of which could materially and adversely affect our business, results of operations and financial condition.

Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation and corporate and consumer spending;

disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion;

adverse changes in international trade policies and relations;

our ability to maintain or increase our prices, including fuel surcharges in response to rising fuel costs;

further disruptions in global supply chains;

terrorist activities targeting business infrastructure;

our exposure to foreign currency fluctuations;

and constraints, volatility, or disruption in the capital markets.

Fluctuations in foreign currency exchange rates have had, and could continue to have, an adverse impact on our financial condition and results of operations.

Changes in the value of foreign currencies relative to the U.S.

dollar have adversely affected our results of operations and financial position and could continue to do so.

In recent periods, as the value of the U.S.

dollar has strengthened in comparison to certain foreign currencies — particularly in our EAAA segment and the impact of the Euro on our European operations — our reported revenues have been negatively impacted.

As approximately 47% of our revenue is denominated in foreign currencies, these exchange rate fluctuations have had, and could continue to have, a significant adverse impact on our financial results.

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

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exit leads to economic difficulties in Europe.

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Risk Factors Related to our Indebtedness

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We have a substantial amount of debt and debt service requirements.

As of January 2, 2022, we had approximately $525.1 million of outstanding debt, and we had $290.9 million of undrawn borrowing capacity under our existing credit facility.

As of January 1, 2023, we had approximately $526.3 million of outstanding debt, and we had $274.1 million of undrawn borrowing capacity under our Syndicated Credit Facility.

This level of debt could have significant consequences on our future operations, including:

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• reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;

• subjecting us to the risk of increasing interest expense on variable rate indebtedness, including borrowings under our existing credit facility;

• subjecting us to the risk of increasing interest expense on variable rate indebtedness, including borrowings under our Syndicated Credit Facility;

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

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

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

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

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

For information regarding the current variable interest rates of these borrowings and the potential impact on our interest expense from hypothetical increases in short term interest rates, please see the discussion in Item 7A of this Report.

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

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Treasury securities.

A transition away from the widespread use of LIBOR to SOFR or another benchmark rate may occur over the course of the next few years.

We have exposure to LIBOR-based financial instruments, namely our existing credit facility which has variable (or floating) interest rates based on LIBOR.

On September 29, 2022, the FCA announced its decision to stop publishing the 1-month and 6-month LIBOR rates by the end of March 2023.

We had exposure to LIBOR-based financial instruments, namely our Syndicated Credit Facility which has variable (or floating) interest rates based on LIBOR.

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

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

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

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

In December 2021 we amended our Syndicated Credit Facility to replace LIBOR with a successor rate for loans denominated in euros or British Pound sterling.

In October 2022, we amended our credit facility to replace LIBOR interest rates with the SOFR rate for U.S.

denominated loans.

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

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Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our operations to pay our indebtedness.

Our ability to generate cash in order to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, legislative, regulatory and other factors beyond our control.

In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our existing credit facility and our other financing agreements, including the indenture governing the Senior Notes, and other agreements we may enter into in the future.

Specifically, we will need to maintain certain financial ratios under our existing credit facility.

In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our Syndicated Credit Facility and our other financing agreements, including the indenture governing the Senior Notes, and other agreements we may enter into in the future.

Specifically, we will need to maintain certain financial ratios under our Syndicated Credit Facility.

Our business may not continue to generate sufficient cash flow from operations in the future and future borrowings may not be available to us under our existing revolving credit facility or from other sources in an amount sufficient to service our indebtedness, including the Senior Notes, to make necessary capital expenditures or to fund our other liquidity needs.

If we are unable to generate cash from our operations or through borrowings, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.

Our ability to make payments on our indebtedness or refinance our indebtedness will depend on the capital markets and our financial condition at such time, as well as the terms of our financing agreements, including the existing credit facility, and the indenture governing the Senior Notes.

Our ability to make payments on our indebtedness or refinance our indebtedness will depend on the capital markets and our financial condition at such time, as well as the terms of our financing agreements, including the Syndicated Credit Facility, and the indenture governing the Senior Notes.

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

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

Subject to the restrictions in our existing credit facility and in the indenture governing our Senior Notes, we and our subsidiaries may be able to incur additional indebtedness in the future.

Although our existing credit facility and the indenture governing the Senior Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, including the ability, on a non-committed basis, for us to increase revolving commitments and/or term loans under our existing credit facility, and debt incurred in compliance with these restrictions could be substantial.

Subject to the restrictions in our Syndicated Credit Facility and in the indenture governing our Senior Notes, we and our subsidiaries may be able to incur additional indebtedness in the future.

Although our Syndicated Credit Facility and the indenture governing the Senior Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, including the ability, on a non-committed basis, for us to increase revolving commitments and/or term loans under our Syndicated Credit Facility, and debt incurred in compliance with these restrictions could be substantial.

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

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Risk Factors Related to our Business and Operations

We compete with a large number of manufacturers in the highly competitive floorcovering products market, and some of these competitors have greater financial resources than we do.

We may face challenges competing on price, making investments in our business, or competing on product design.

The floorcovering industry is highly competitive.

Globally, we compete for sales of floorcovering products with other carpet manufacturers and manufacturers of other types of floorcovering.

Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry.

Moreover, some of our competitors are adding manufacturing capacity into the industry throughout the globe which could increase the amount of supply in the market.

Increased capacity at our competitors could result in pricing pressure on our products (including products, like LVT, which may currently carry attractive margins) and less demand for our products, thus adversely affecting both revenues and profitability.

Competing effectively may require us to make additional investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities.

In addition, we often compete on design preferences.

Our customers’ design preferences may evolve or change before we adapt quickly enough to those changes or before we recognize those changes have happened in the marketplace.

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

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

In addition, we rely significantly on the leadership that David Oakey of David Oakey Designs provides to our internal design staff.

Specifically, David Oakey Designs provides product design/production engineering services to us under an exclusive consulting contract that contains non-competition covenants.

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

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

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

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

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

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

The loss of key personnel with a great deal of knowledge, training and experience in the flooring industry — particularly in the areas of sales, marketing, operations, product design and management — could have an adverse impact on our business.

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

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

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

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

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

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

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

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

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