What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-02 · 207 added, 174 removed, 307 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our revenues are derived from sales of floorcovering products, primarily modular carpet, luxury vinyl tile (“LVT”) and rubber flooring products.

Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space.

The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces.

In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations.

As a result, macroeconomic factors such as employment rates, office vacancy rates, work from home policies, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.

During fiscal year 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 continues to include the United States, Canada and Latin America geographic areas.

See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information .

The results of operations discussion below also includes segment information.

We focus our marketing and sales efforts on both corporate office and non-corporate office market segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share.

More than half of our consolidated net sales were in non-corporate office markets in fiscal year 2022 and fiscal year 2021, primarily in education, healthcare, retail, public buildings, hospitality and residential/living market segments.

See Item 1, entitled “Business,” included in this Annual Report on Form 10-K for additional information regarding our mix of sales in corporate office verses non-corporate office market segments for the last three fiscal years by reportable segment.

Executive Summary

During 2022, we had consolidated net sales of $1,297.9 million, up 8.1% compared to $1,200.4 million in 2021, primarily due to higher sales in the corporate office, education and retail market segments.

Consolidated operating income for 2022 was $75.4 million compared to consolidated operating income of $104.8 million in 2021 primarily due to continuing inflationary pressures on raw materials and freight costs in the current year and a $36.2 million goodwill and intangible asset impairment charge in 2022.

Consolidated net income for 2022 was $19.6 million or $0.33 per share, compared to consolidated net income of $55.2 million, or $0.94 per share, in 2021.

During 2021, we had consolidated net sales of $1,200.4 million, up 8.8% compared to $1,103.3 million in 2020, primarily due to the rebound in economic activity in certain countries following the impacts of COVID-19.

Consolidated operating income for 2021 was $104.8 million compared to consolidated operating loss of $39.3 million in 2020 primarily due to higher sales in 2021 and a $121.3 million impairment of goodwill and certain intangible assets in 2020 .

Fiscal year 2021 also included $3.9 million of restructuring charges in connection with the planned closure of our Thailand manufacturing operations which occurred in 2022.

Consolidated net income for 2021 was $55.2 million or $0.94 per share, compared to consolidated net loss of $71.9 million, or $1.23 per share, in 2020.

A detailed discussion of our 2022 and 2021 consolidated and segment performance appears below under “Analysis of Results of Operations”.

Cybersecurity Event

As previously disclosed in our current report on Form 8-K filed with the SEC on November 23, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems on November 20, 2022.

Promptly, out of an abundance of caution, we 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 impact to our operations.

We took steps to supplement existing security monitoring, including scanning and protective measures, and notified law enforcement.

Ta b le of Contents

The Company substantially resumed its operations within two weeks following the occurrence of the Cyber Event.

However, the investigation of the Cyber Event by our forensic experts is still ongoing.

We estimate the Cyber Event adversely affected our fiscal 2022 revenues by approximately $8 million in lost sales.

We incurred approximately $5 million of costs related to the Cyber Event in 2022 for idle plant costs, direct labor costs during the period our manufacturing facilities were idle and third party remediation costs.

Approximately $4.8 million of the Cyber Event costs were included in cost of sales in the consolidated statement of operations and approximately $0.3 million in selling, general and administrative expenses.

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

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

Impact of the COVID-19 Pandemic

On March 1, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services.

The COVID-19 pandemic has had material adverse effects on our business, results of operations, and financial condition, and it is anticipated that this will continue for an indefinite period of time.

On March 1, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to impact areas where we operate and sell our products and services.

The COVID-19 pandemic has had material adverse effects on our business, results of operations, and financial condition.

The duration of the pandemic will ultimately determine the extent to which our operations are impacted.

We continue to monitor our operations and have implemented various programs to mitigate the effects on our business including reductions in employees, labor costs, marketing expenses, consulting expenses, travel costs, various other costs, and capital expenditures, as well as reducing the amount of the cash dividend that we pay on our common stock.

We continue to focus on the impact COVID-19 has on our employees in accordance with the Company’s ongoing safety measures, as well as any local government orders and “shelter in place” directives in place from time to time.

During fiscal year 2021, the COVID-19 pandemic had less of an impact on our overall financial results as consolidated net sales increased 8.8% compared to fiscal year 2020.

Government stimulus programs, increased COVID-19 vaccination rates, and fewer COVID-19 related restrictions in some places contributed to a rebound in economic activity in certain countries driving higher revenues globally compared to fiscal year 2020.

The sales increase in fiscal year 2021 compared to fiscal year 2020 was primarily in non-corporate office market segments, including healthcare, education, retail, residential / living and transportation.

During fiscal year 2022, the COVID-19 pandemic continued to have less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.1% compared to 2021.

However, continuing government imposed COVID-19 lockdowns and restrictions in parts of China adversely impacted sales in China by approximately 13% compared with the prior year.

Ongoing global supply chain challenges and inflationary pressures resulted in higher raw material costs, higher freight costs and shipping delays during 2022, which increased our operating costs and adversely impacted our gross profit margin.

Management believes it is reasonably likely these impacts will continue to affect our future operations and results to some degree, particularly during the first half of 2023.

During fiscal year 2021, the COVID-19 pandemic had less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.8% compared to fiscal year 2020.

Government stimulus programs, increased COVID-19 vaccination rates, and fewer COVID-19 related restrictions in some places contributed to a rebound in economic activity in certain countries in 2021 driving higher revenues globally compared to fiscal year 2020.

Our global supply chain and manufacturing operations, however, experienced increased adverse impacts and disruptions in 2021 from COVID-19.

1 unchanged sentence

These impacts to our supply chain and manufacturing operations increased our costs, decreased our ability to achieve manufacturing targets, increased lead times to our customers, and adversely affected our gross profit margin as a percentage of net sales.

Management believes it is reasonably likely these impacts will continue and affect our future operations and results to some degree, particularly during the first half of 2022.

During fiscal year 2020, the COVID-19 pandemic resulted in 17.9% lower consolidated net sales compared to fiscal year 2019.

2 unchanged sentences

During 2020, the Company recorded $12.9 million of voluntary and involuntary severance costs, which were included in selling, general and administrative expenses in the consolidated statements of operations.

In fiscal year 2020, government grants and payroll protection programs were available in various countries globally to provide assistance to companies impacted by the pandemic.

Also in fiscal year 2020, government grants and payroll protection programs were available in various countries globally to provide assistance to companies impacted by the pandemic.

The CARES Act enacted in the United States (see Note 17 entitled “ Income Taxes ” included in Item 8 of this Annual Report on Form 10-K for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”) provided benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments.

3 unchanged sentences

See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.

Executive Overview

Our revenues are derived from sales of floorcovering products, primarily modular carpet, luxury vinyl tile (“LVT”) and rubber flooring products.

In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations.

As a result, macroeconomic factors such as employment rates, office vacancy rates, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.

Tab le of Contents

During fiscal year 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” included in Item 8 of this Annual Report on Form 10-K for additional information .

The results of operations discussion below also includes segment information.

More than half of our consolidated net sales were in non-corporate office markets in fiscal year 2021 and fiscal year 2020, primarily in education, healthcare, government, retail, and residential/living market segments.

See Item 1, “Business” of this Annual Report on Form 10-K for additional information regarding our mix of modular carpet and resilient flooring sales in corporate office verses non-corporate office market segments for the last three fiscal years by reportable segment.

Fiscal year 2021 also included $3.9 million of restructuring charges in connection with the planned closure of our Thailand manufacturing operations anticipated to occur in 2022.

Consolidated net income for 2021 was $55.2 million or $0.94 per share, compared to consolidated net loss of $71.9 million, or $1.23 per share, in 2020.

During 2020, we had consolidated net sales of $1,103.3 million, down 17.9% compared to $1,343.0 million in 2019, primarily due to the impacts of COVID-19.

The consolidated operating loss for 2020 was $39.3 million compared to consolidated operating income of $130.9 million in 2019, due primarily to a $121.3 million goodwill and intangible asset impairment charge recorded in fiscal 2020 due to the impacts of COVID-19.

The consolidated net loss for 2020 was $71.9 million, or $1.23 per share, compared to consolidated net income of $79.2 million, or $1.34 per share, in 2019.

A detailed discussion of our 2021 and 2020 consolidated and segment performance appears below under “Analysis of Results of Operations”.

Tab le of Contents

Ta b le of Contents

Analysis of Results of Operations

4 unchanged sentences

Because we have substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions.

In 2022, the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S.

dollar had a negative impact on our net sales and operating income.

In 2021, the strengthening of the Euro, Australian dollar, Chinese Renminbi and British Pound sterling against the U.S.

1 unchanged sentence

In 2020, the strengthening of the Euro, British Pound sterling, and Chinese Renminbi against the U.S.

dollar had a positive impact on our net sales and operating income.

In 2019, the weakening of the Euro, British Pound sterling, Australian dollar, Canadian dollar and Chinese Renminbi against the U.S.

dollar had a negative impact on our net sales and operating income.

dollar had a positive impact on our net sales and operating loss.

The following table presents the amounts (in U.S.

9 unchanged sentences

Cost of sales 66.3 64.0 62.8

Gross profit on sales 36.0 37.2 39.7

Gross profit 33.7 36.0 37.2

Selling, general and administrative expenses 25.0 27.0 30.2

2 unchanged sentences

Operating income (loss) 5.7 8.7 (3.6)

Interest/Other expense 2.7 3.6 2.2

Interest/Other expense, net 2.6 2.7 3.6

Income (loss) before income tax expense 3.1 6.0 (7.2)

8 unchanged sentences

Consolidated net sales $ 1,297,919 $ 1,200,398 $ 1,103,262 8.1 % 8.8 %

Tab le of Contents

Ta b le of Contents

Consolidated net sales for 2022 compared with 2021

For 2021, our consolidated net sales increased $97.1 million (8.8%) compared to 2020, comprised of higher sales volumes (approximately 5.1%) and higher prices (approximately 3.7%).

Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated sales comparison of approximately $23.9 million, meaning that if currency levels had remained constant year over year our 2021 sales would have been lower by this amount.

On a market segment basis, the sales increase was most significant in non-corporate office market segments including retail, education and healthcare.

For 2022, our consolidated net sales increased $97.5 million (8.1%) compared to 2021, comprised of higher sales volumes (approximately 5.4%) and higher prices (approximately 2.7%, including the impact of currency fluctuations).

Fluctuations in currency exchange rates had a negative impact on our year-over-year consolidated net sales comparison of approximately $58.8 million, meaning that if currency levels had remained constant year-over-year, our 2022 net sales would have been higher by this amount.

On a market segment basis, the sales increase was most significant in the corporate office, retail and education market segments.

See the segment results discussion below for additional information on market segments.

Consolidated net sales for 2021 compared with 2020

For 2020, our consolidated net sales decreased $239.8 million (17.9%) compared to 2019, primarily due to the impacts of COVID-19 resulting in lower sales volumes globally.

Fluctuations in currency exchange rates had a positive impact on our year-over-year sales comparison of approximately $7.1 million, meaning that if currency levels had remained constant year over year, our 2020 sales would have been lower by this amount.

On a market segment basis, the decrease in consolidated net sales was primarily in the corporate office, retail, hospitality and healthcare market segments.

For 2021, our consolidated net sales increased $97.1 million (8.8%) compared to 2020, comprised of higher sales volumes (approximately 5.1%) and higher prices (approximately 3.7%).

Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated net sales comparison of approximately $23.9 million, meaning that if currency levels had remained constant year over year, our 2021 sales would have been lower by this amount.

On a market segment basis, the sales increase was most significant in non-corporate office market segments including retail, education and healthcare.

See the segment results discussion below for additional information on market segments.

2 unchanged sentences

Fiscal Year Percentage Change

2021 2020 2019 2021 compared

with 2020 2020 compared

2022 2021 2020 2022 compared with 2021 2021 compared with 2020

(in thousands)

1 unchanged sentence

Consolidated selling, general and administrative expenses 324,190 324,315 333,229 0.0 % (2.7) %

For 2021, our consolidated costs of sales increased $75.0 million (10.8%) compared to 2020, primarily due to higher net sales and the continued adverse impacts of COVID-19.

Consolidated Cost of Sales

For 2022, our consolidated cost of sales increased $92.5 million (12.1%) compared to 2021, primarily due to higher sales and continuing inflationary pressures on raw materials and freight costs.

The increase in consolidated cost of sales was also impacted by higher energy costs (which were up approximately 28%) in our EAAA segment primarily due to shortages in the supply of natural gas in connection with the ongoing conflict between Russia and Ukraine.

Currency translation had a positive impact on consolidated cost of sales of approximately $37.2 million (4.8%) compared to last year.

The increase in cost of sales in 2022 also includes $4.8 million of costs related to the Cyber Event, as discussed above.

As a percentage of net sales, our consolidated cost of sales increased to 66.3% in 2022 versus 64.0% in 2021, due to higher raw materials, freight and energy costs, as discussed above.

Management believes it is reasonably likely the inflationary pressures experienced in 2022 will continue to some degree in 2023, particularly in the first half of 2023, and expects to continue managing these pressures through higher sales prices, product mix and plant productivity initiatives.

For 2021, our consolidated cost of sales increased $75.0 million (10.8%) compared to 2020, primarily due to higher net sales and the continued adverse impacts of COVID-19.

Currency translation had a $16.2 million (2.3%) negative impact on the year-over-year comparison.

In 2021, the impact of COVID-19 continued to challenge our global supply chain which contributed to higher cost of sales and lower gross profit margins — particularly in the United States.

As a percentage of net sales, our consolidated costs of sales increased to 64.0% in 2021 versus 62.8% in 2020, primarily due to inflationary pressures on raw materials, freight and labor costs driving an approximately 3.4% increase in cost of sales as a percentage of net sales compared to the prior year.

As a percentage of net sales, our consolidated cost of sales increased to 64.0% in 2021 versus 62.8% in 2020, primarily due to inflationary pressures on raw materials, freight and labor costs driving an approximately 3.4% increase in cost of sales as a percentage of net sales compared to the prior year.

The increase in our consolidated cost of sales as a percentage of net sales was partially offset by productivity efficiencies during the year.

Management believes it is reasonably likely the inflationary pressures experienced in 2021 will continue to some degree in 2022, particularly in the first half of 2022.

For 2020, our consolidated costs of sales decreased $117.4 million (14.5%) compared with 2019, primarily due to lower net sales.

Currency translation had a $4.7 million (0.6%) negative impact on the year-over-year comparison.

As a percentage of net sales, our consolidated costs of sales increased to 62.8% in 2020 versus 60.3% in 2019, primarily due to changes in fixed cost absorption driven by lower production volumes due to the impacts of COVID-19.

Ta b le of Contents

Consolidated Gross Profit

For 2022, consolidated gross profit, as a percentage of net sales, was 33.7% compared to 36.0% for 2021.

The decrease was primarily due to continuing inflationary pressures for raw materials and freight costs.

As noted above, management believes it is reasonably likely the inflationary pressures experienced in 2022 will continue to some degree in 2023, particularly in the first half of 2023, and expects to continue managing these pressures through higher sales prices and product mix.

For 2021, consolidated gross profit, as a percentage of net sales, was 36.0% compared with 37.2% for 2020.

The decrease was primarily due to the impacts of COVID-19 and the resulting supply chain challenges driving higher costs and shortages for raw materials and labor.

Consolidated SG&A Expenses

For 2022, our consolidated SG&A expenses were $324.2 million versus $324.3 million in 2021.

Currency translation had a $9.5 million (4.1%) positive impact on the year-over-year comparison.

Consolidated SG&A expenses were flat compared to 2021 as higher selling expenses of approximately $8.5 million due to higher sales were offset by lower labor costs due to prior year employee reductions and $5.4 million in lower professional fees due to prior year insurance recoveries.

As a percentage of net sales, SG&A expenses decreased to 25.0% in 2022 versus 27.0% in 2021.

For 2021, our consolidated SG&A expenses decreased $8.9 million (2.7%) versus 2020.

3 unchanged sentences

As a percentage of net sales, SG&A expenses decreased to 27.0% in 2021 versus 30.2% in 2020.

Tab le of Contents

For 2020, our consolidated SG&A expenses decreased $55.9 million (14.4%) versus 2019.

Currency translation had a $1.5 million (0.4%) negative impact on the year-over-year comparison.

Consolidated SG&A expenses were lower in 2020 primarily due to (1) lower selling expenses of $54.8 million due to lower net sales, (2) $7.3 million of payroll expense credits related to COVID-19 wage support government assistance programs, and (3) $9.2 million lower performance-based compensation due to stock compensation forfeitures and target performance measures not being met due to COVID-19.

These reductions were partially offset by $12.9 million of severance expenses due to voluntary and involuntary separations, and a $5.0 million fine to settle the SEC matter as referenced in Item 8 Note 18 - “Commitments and Contingencies”.

As a percentage of sales, SG&A expenses increased to 30.2% in 2020 versus 29.0% in 2019, primarily due to lower net sales.

Restructuring Plans

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 carpet tile 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 costs of retention bonuses of approximately $0.5 million will be recognized through the end of fiscal year 2022 as earned over the requisite service periods.

Restructuring charges of $3.9 million comprised of severance and asset impairment charges were recognized during the third quarter of 2021.

The Thailand plant closure is expected to result in future cash expenditures of approximately $3 million to $4 million for payment of the employee severance and employee retention bonuses and other costs of the shutdown of the Thailand manufacturing facility, as described above.

The Company expects to complete the restructuring plan in fiscal year 2022 and expects the plan to yield annualized savings of approximately $1.7 million.

A portion of the annualized savings is expected to be realized on the consolidated statement of operations in fiscal year 2022, with the remaining portion of the annualized savings expected to be realized in fiscal year 2023.

On December 23, 2019, the Company committed to a new restructuring plan to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved a reduction of approximately 105 employees and early termination of two office leases.

As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $9.0 million.

The charge was comprised of severance expenses ($8.8 million) and lease exit costs ($0.2 million).

The restructuring charge was expected to result in future cash expenditures of approximately $9.0 million for payment of these employee severance and lease exit costs.

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 fiscal year 2020, with the remaining portion of the annualized savings realized in fiscal year 2021.

On December 29, 2018, the Company committed to a new restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy.

The plan involved (i) a restructuring of its sales and administrative operations in the United Kingdom, (ii) a reduction of approximately 200 employees, primarily in the Europe and Asia-Pacific geographic regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets and obsolete manufacturing equipment.

The restructuring plan was completed at the end of fiscal year 2020.

On September 8, 2021, the Company committed to a 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 carpet tile manufacturing facility in Thailand at the end of the first quarter of 2022.

In connection with this plan, the Company recognized restructuring charges of $2.0 million comprised of severance and asset impairment charges and other related charges during fiscal year 2022.

In conjunction with the closure of its Thailand facility, the Company recorded a write-down of inventory of $2.5 million in fiscal year 2022 within cost of sales in the consolidated statements of operations.

See Note 16 entitled “ Restructuring and Other Charges” of Part II, Item 8 of this Annual Report for additional information.

Goodwill, Intangible Asset and Fixed Asset Impairment

During 2021, we recognized a fixed asset impairment charge of $4.4 million for projects that were abandoned.

During 2020, we recognized a charge of $121.3 million for the impairment of goodwill and certain intangible assets.

During 2022 and 2020, we recognized charges of $36.2 million and $121.3 million, respectively, for the impairment of goodwill and certain intangible assets.

See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.

During 2020, we also recognized fixed asset impairment charges of $5.0 million primarily related to certain FLOR design center closures and other projects that were abandoned or indefinitely delayed.

During 2022 and 2021, we recognized fixed asset impairment charges of $2.9 million and $4.4 million, respectively, for projects that were abandoned.

During 2020, we recognized fixed asset impairment charges of $5.0 million primarily related to certain FLOR design center closures and other projects that were abandoned or indefinitely delayed.

These charges are included in selling, general and administrative expenses in the consolidated statements of operations.

Tab le of Contents

Interest Expense

For 2022, our interest expense was $29.9 million, versus $29.7 million in 2021.

Higher interest rates in 2022 were offset by lower outstanding term loan borrowings under the Syndicated Credit Facility.

Our average borrowing rate under the Syndicated Credit Facility as of January 1, 2023 was 5.78% compared to 1.91% at January 2, 2022.

Ta b le of Contents

For 2021, our interest expense increased $0.5 million to $29.7 million, versus $29.2 million in 2020, primarily due to (1) higher fixed-rate interest expense on the Senior Notes debt, which replaced variable-rate debt under the Syndicated Credit Facility, and (2) $4.9 million of deferred losses recognized on terminated interest rate swaps that were reclassified from accumulated other comprehensive loss into interest expense during the year.

1 unchanged sentence

Our average borrowing rate under the Syndicated Credit Facility was 1.91% for 2021 compared to 1.89% in 2020.

For 2020, our interest expense increased $3.6 million to $29.2 million, versus $25.6 million in 2019, primarily due to (1) a $3.6 million loss on extinguishment of debt to amend the Syndicated Credit Facility and repay a portion of outstanding indebtedness thereunder, and (2) a $3.9 million reclassification from accumulated other comprehensive loss for deferred interest rate swap losses due to the termination of interest rate swap contracts.

These increases were partially offset by lower average interest rates on our borrowings under the Syndicated Credit Facility (our average borrowing rate for 2020 was 1.89% compared to 3.27% in 2019) and lower outstanding borrowings under the Syndicated Credit Facility compared to 2019.

Other Expense

Other expenses decreased $8.4 million during fiscal year 2021 compared to 2020, primarily due to a $4.2 million write-down of damaged raw material inventory in 2020, which resulted from a fire at a leased storage facility.

For the year ended January 1, 2023, the Company recorded income tax expense of $22.4 million on pre-tax income of $41.9 million resulting in an effective tax rate of 53.3%, as compared to an income tax expense of $17.4 million on pre-tax income of $72.6 million resulting in an effective tax rate of 24.0% for the year ended January 2, 2022.

The effective tax rate for the year ended January 1, 2023 was significantly impacted by a non-deductible goodwill impairment charge.

Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for the year ended January 1, 2023.

The increase in the effective tax rate, excluding the goodwill impairment charge, was primarily due to an increase in non-deductible employee compensation, an increase in the valuation allowance on net operating loss and interest carryforwards, unfavorable changes related to the cash surrender value of company-owned life insurance policies and unfavorable changes related to foreign exchange movements.

For the year ended January 2, 2022, the Company recorded income tax expense of $17.4 million on pre-tax income of $72.6 million resulting in an effective tax rate of 24.0%, as compared to an income tax benefit of $7.5 million on pre-tax loss of $79.4 million resulting in an effective tax rate of 9.4% for the year ended January 3, 2021.

3 unchanged sentences

This increase was partially offset by a decrease in non-deductible business expenses.

For the year ended January 3, 2021, the Company recorded an income tax benefit of $7.5 million on pre-tax loss of $79.4 million resulting in an effective tax rate of 9.4%.

The effective tax rate for this period was significantly impacted by a non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions taken in prior years on discontinued operations.

Excluding the impact of the non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, the effective tax rate was 14.1% for 2020 compared to 22.2% in 2019.

The decrease in the effective tax rate, excluding the goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, was primarily due to the favorable impacts of amending prior year tax returns, retroactive election of the GILTI High-tax Exclusion in the 2019 tax return and reduction in non-deductible employee compensation.

This decrease was partially offset by the non-deductible SEC fine.

Segment Results

As discussed above, in fiscal year 2021 the Company determined that it has two operating and reportable segments – AMS and EAAA.

Segment information presented below for fiscal years 2020 and 2019 have been restated to conform to the new reportable segment structure.

As discussed above, in 2021 the Company determined that it has two operating and reportable segments – AMS and EAAA.

Segment information presented below for 2020 has been recast to conform to the new reportable segment structure.

See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information .

Tab le of Contents

AMS Segment – Net Sales and Adjusted Operating Income (“AOI”)

7 unchanged sentences

(1) Includes allocation of corporate SG&A expenses.

Excludes non-recurring items related to intangible asset impairment charges, restructuring, asset impairment, severance and other costs.

Excludes intangible asset impairment charges, Cyber Event costs, and restructuring, asset impairment, severance and other costs.

See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.

1 unchanged sentence

During 2022, net sales in AMS increased 15.7% versus 2021, comprised of higher sales volumes and higher prices.

On a market segment basis, the AMS sales increase was most significant in the retail (up 54.2%), education (up 18.9%), public buildings (up 18.0%), corporate office (up 11.7%) and healthcare (up 5.8%) market segments.

These increases were partially offset by decreases in the consumer residential (down 8.7%) market segment.

Ta b le of Contents

AMS segment net sales for 2021 compared with 2020

During 2021, net sales in AMS increased 9.7% versus 2020, comprised of higher sales volumes and higher prices.

On a market segment basis, the AMS sales increase was most significant in non-corporate office market segments including healthcare (up 19.1%), retail (up 19.1%) and education (up 18.3%).

1 unchanged sentence

These increases were partially offset by decreases in the hospitality (down 38.3%) and public buildings (down 20%) market segments.

AMS segment net sales for 2020 compared with 2019

During 2020, net sales in AMS decreased 21.6% versus the comparable period in 2019.

The AMS sales decrease in 2020 was due primarily to the impacts of COVID-19 and lower carpet tile sales volumes.

On a market segment basis, the sales decrease in the Americas was most significant in the corporate office (down 33.8%), retail (down 34.8%), healthcare (down 15.2%) and education (down 8.3%) market segments, partially offset by increases in the residential living (up 23.8%) and public buildings (up 8.2%) market segments.

AMS AOI for 2022 compared with 2021

AOI in AMS increased 20.4% during 2022 compared to 2021 primarily due to higher sales.

AMS SG&A expenses as a percentage of net sales in 2022 decreased approximately 0.7% compared to 2021, primarily due to lower administrative costs, which contributed to the increase in AOI for the current year.

As a percentage of net sales, AOI increased to 13.6% in 2022 versus 13.1% in 2021.

AMS AOI for 2021 compared with 2020

AOI in AMS decreased 4.6% during 2021 compared to 2020 primarily due to higher cost of sales as a result of inflationary pressures on raw materials, freight and labor costs driving an approximately 3.0% increase in cost of sales as a percentage of net sales compared to the prior year.

1 unchanged sentence

AOI as a percentage of net sales for fiscal 2021 decreased to 13.1% compared to 15.0% in 2020 due to the global supply chain pressures discussed above.

AMS AOI for 2020 compared with 2019

AOI in AMS decreased 26.3% during 2020 compared to 2019 primarily due to the impacts of COVID-19 which resulted in lower sales volumes in 2020.

The decrease in AOI was also partially due to costs related to the closure of the FLOR stores in 2020.

EAAA Segment – Net Sales and AOI

7 unchanged sentences

(1) Includes allocation of corporate SG&A expenses.

Excludes non-recurring items related to goodwill and intangible asset impairment charges, purchase accounting amortization, restructuring, asset impairment, severance and other costs.

Excludes goodwill and intangible asset impairment charges, purchase accounting amortization, Thailand plant closure inventory write-down, Cyber Event costs, and restructuring, asset impairment, severance and other costs.

See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.

Tab le of Contents

EAAA segment net sales for 2022 compared with 2021

During 2022, net sales in EAAA decreased 0.9% versus 2021.

Higher selling prices and volume were offset by the impact of negative currency fluctuations of approximately $56.7 million (10.3%) for 2022 compared to 2021 due to the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S.

On a market segment basis, EAAA sales increased in the corporate office (up 6.2%) and hospitality (up 22.3%) market segments.

These increases were offset by decreases in the public buildings (down 25.7%), transportation (down 21.3%), retail (down 14.9%) and healthcare (down 8.2%) market segments.

EAAA segment net sales for 2021 compared with 2020

During 2021, net sales in EAAA increased 7.7% versus 2020, comprised of higher sales volumes and higher prices.

3 unchanged sentences

These increases were partially offset by a decrease in the education (down 2.6%) market segment.

EAAA segment net sales for 2020 compared with 2019

During 2020, net sales in EAAA decreased 13.0% versus 2019, due primarily to the impacts of COVID-19 and lower carpet tile sales volumes.

Currency fluctuations had an approximately $7.3 million (1.3%) positive impact on EAAA’s fiscal year 2020 sales compared with 2019, due primarily to the strengthening of the Euro and British Pound sterling against the U.S.

On a market segment basis, the EAAA sales decrease was most significant in the hospitality (down 40.3%), corporate office (down 19.1%), public buildings (down 16.0%) and retail (down 12.9%) market segments.

Ta b le of Contents

EAAA AOI for 2022 compared with 2021

AOI in EAAA decreased 19.3% during 2022 versus 2021 due to continuing inflationary pressures on raw materials and higher energy costs (which were up approximately 28%) primarily due to natural gas shortages in connection with the ongoing conflict between Russia and Ukraine.

The decrease in AOI was also due to negative currency fluctuations of approximately $6.5 million (9.9%) due to the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S.

EAAA SG&A expenses as a percentage of net sales in 2022 decreased approximately 2.5% compared to last year, which partially offset the negative impacts on AOI discussed above.

As a percentage of net sales, AOI decreased to 5.5% in 2022 versus 6.8% in 2021.

EAAA AOI for 2021 compared with 2020

AOI in EAAA increased 74.1% during 2021 versus 2020.

2 unchanged sentences

AOI as a percentage of net sales increased to 6.8% in 2021 compared to 4.2% in 2020, due primarily to higher sales as discussed above.

EAAA AOI for 2020 compared with 2019

AOI in EAAA decreased 25.8% during 2020 versus 2019, primarily due to the impacts of COVID-19 which resulted in lower sales volumes in 2020.

Currency fluctuations had an approximately $0.9 million (1.4%) positive impact on AOI for 2020.

Liquidity and Capital Resources

Financial Condition, Liquidity and Capital Resources

In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs, in addition to funding normal course SG&A expenses, anticipated capital expenditures, interest expense and potential special projects.

We generate our cash and other liquidity requirements primarily from our operations and from borrowings or letters of credit under our Syndicated Credit Facility and Senior Notes discussed below.

We generate our cash and other liquidity requirements primarily from our operations and from borrowings under our Syndicated Credit Facility (the “Facility”) discussed below.

We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations.

1 unchanged sentence

Payments Due by Period

Total Payments

Due Less than

1 year 1-3 years 3-5 years More than

Short-Term Long-Term Total

(in thousands)

5 unchanged sentences

Total $ 86,375 $ 775,580 $ 861,955

Tab le of Contents

Historically, we use more cash in the first half of the fiscal year, as we pay insurance premiums, taxes and incentive compensation and build up inventory in preparation for the holiday/vacation season of our international operations.

As outlined in the table above, we have approximately $79.2 million in material contractual cash obligations due by the end of fiscal year 2022, which includes, among other things, scheduled debt repayments under the Syndicated Credit Facility, pension contributions, interest payments on our debt and lease commitments.

Our long-term debt obligations include the contractually scheduled principal repayment of our term loan borrowings under the Syndicated Credit Facility, which matures in 2025, and $300 million on our Senior Notes due in 2028.

As outlined in the table above, we have approximately $86.4 million in material contractual cash obligations due within the next year, which includes, among other things, scheduled debt repayments under the Facility, pension contributions, interest payments on our debt, and lease commitments.

Our long-term debt obligations include the contractually scheduled principal repayment of our term loan and revolving loan borrowings under the Facility, which matures in 2027, and $300 million on our Senior Notes due in 2028.

Operating and finance lease obligations consist of undiscounted lease payments due over the term of the lease.

Expected interest payments are those associated with borrowings under the Syndicated Credit Facility and Senior Notes consistent with our contractually scheduled principal repayments.

Expected interest payments are those associated with borrowings under the Facility and Senior Notes consistent with our contractually scheduled principal repayments.

Our purchase obligations are for non-cancellable agreements primarily for raw material purchases and capital expenditures.

Our current and long-term pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and excludes the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans over the next ten years.

Our pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and excludes the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans over the next ten years.

Based on current interest rates and debt levels, we expect our aggregate interest expense for 2023 to be between $32 million and $33 million.

We estimate aggregate capital expenditures in 2023 to be approximately $32 million, although we are not committed to these amounts.

Ta b le of Contents

At January 1, 2023, we had $97.6 million in cash.

5 unchanged sentences

state income taxes on these amounts in accordance with applicable accounting standards.

As of January 2, 2022, we had $225.1 million of borrowings outstanding under our Syndicated Credit Facility, of which $217.6 million were term loan borrowings and $7.5 million were revolving loan borrowings.

Additionally, $1.6 million in letters of credit were outstanding under the Syndicated Credit Facility at the end of fiscal year 2021.

As of January 2, 2022, we had additional borrowing capacity of $290.9 million under the Syndicated Credit Facility and $6.0 million of additional borrowing capacity under our other credit facilities in place at other non-U.S.

subsidiaries.

As of January 1, 2023, we had $226.3 million of borrowings outstanding under our Facility, of which $202.1 million were term loan borrowings and $24.2 million were revolving loan borrowings.

Additionally, $1.6 million in letters of credit were outstanding under the Facility at the end of fiscal year 2022.

As of January 1, 2023, we had additional borrowing capacity of $274.1 million under the Facility.

As of January 1, 2023, the weighted average interest rate on borrowings outstanding under the Facility was 5.78%.

As of January 1, 2023, there were no other lines of credit available to the Company.

On November 17, 2020, we issued $300 million aggregate principal amount of 5.50% Senior Notes due 2028 (the “Senior Notes”), which are discussed further below.

1 unchanged sentence

It is important for you to consider that we have a significant amount of indebtedness.

Our Syndicated Credit Facility matures in November of 2025 and the Senior Notes, as discussed below, mature in December 2028.

Our Facility matures in October of 2027, and the Senior Notes, as discussed below, mature in December 2028.

We cannot assure you that we will be able to renegotiate or refinance any of our debt on commercially reasonable terms, or at all.

If we are unable to refinance our debt or obtain new financing, we would have to consider other options, such as selling assets to meet our debt service obligations and other liquidity needs, or using cash, if available, that would have been used for other business purposes.

It is also important for you to consider that borrowings under our Syndicated Credit Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that short-term interest rates may increase.

It is also important for you to consider that borrowings under our Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that interest rates may increase.

During 2020, we entered into fixed rate Senior Notes (as described below), which reduced the amount of indebtedness subject to interest rate risk.

2 unchanged sentences

We are not a party to any material off-balance sheet arrangements.

Tab le of Contents

Balance Sheet

Inventories, net, were $306.3 million at January 1, 2023 compared to $265.1 million at January 2, 2022.

The increase of $41.2 million was primarily due to higher raw material costs and freight costs due to continuing inflationary pressures and inventory build driven by higher customer demand.

Ta b le of Contents

Analysis of Cash Flows

10 unchanged sentences

Cash and cash equivalents at end of period $ 97,564 $ 97,252 $ 103,053

We ended 2022 with $97.6 million in cash, an increase of $0.3 million during the year.

The increase was primarily due to the following:

• Cash provided by operating activities was $43.1 million for 2022, which represents a decrease of $43.6 million compared to 2021.

The decrease was primarily due to a greater use of cash for working capital during 2022.

Specifically, higher inventories as a result of higher raw material costs and input costs contributed to the greater use of cash for working capital compared to last year.

Higher variable compensation payouts in the first quarter of 2022 (related to 2021 performance) also contributed to the increased use of cash for 2022.

Cash provided by operating activities in 2022 also was negatively impacted by delays in billings due to the Cyber Event, which pushed the due dates for those delayed billings from the fourth quarter of 2022 to the first quarter of 2023.

• Cash used in investing activities was $18.4 million for 2022, which represents a decrease of $9.6 million compared to 2021.

The decrease from the comparable period was primarily due to a decrease in capital expenditures due to reduced capital investment.

• Cash used in financing activities was $19.5 million for 2022, which represents a decrease of $41.4 million compared to 2021.

The year-over-year difference was primarily due to higher revolving loan borrowings in 2022 as a source of cash to fund operating activities as described above, offset by a use of cash for repurchases of the Company’s common stock pursuant to a new share repurchase program adopted in the second quarter of 2022.

Fiscal year 2021 also includes higher repayments of approximately $60 million of term loan borrowings which contributed to a greater use of cash in that period.

We ended 2021 with $97.3 million in cash, a decrease of $5.8 million during the year.

8 unchanged sentences

In 2021, we repaid approximately $60 million in term loan borrowings which contributed to the increase in cash used in financing activities (compared with 2020, when repayments on term loan borrowings were largely funded with the proceeds from the issuance of the $300 million Senior Notes).

Ta b le of Contents

We ended 2020 with $103.1 million in cash, an increase of $21.8 million during the year.

6 unchanged sentences

• Cash used in financing activities was $42.7 million for 2020, which represents a decrease of $24.0 million compared to 2019.

Financing activities for 2020 include higher loan borrowings of $320.0 million primarily due to the issuance of $300 million of Senior Notes, offset by (1) higher repayments of revolving and term loan borrowings as the proceeds from the issuance of the Senior Notes were used to repay $290.7 million of outstanding term and revolving loan borrowings under the Syndicated Credit Facility, and (2) a decrease in dividends paid of $9.8 million.

Tab le of Contents

We ended 2019 with $81.3 million in cash, an increase of $0.3 million during the year.

The most significant uses of cash in 2019 were (1) repayments on our Syndicated Credit Facility of $111.7 million offset by borrowings of $90 million, (2) capital expenditures of $74.6 million, (3) $25.2 million to repurchase 1.6 million shares of the Company’s outstanding common stock, and (3) dividend payments of $15.4 million.

These uses were offset by cash flow from operations of $141.8 million, primarily generated from (1) net income of $79.2 million, (2) $19.4 million for increases in accounts payable and accrued expenses, and (3) $2.6 million due to a decrease in inventories.

These sources of cash were reduced by working capital uses of (1) $9.7 million due to increases in prepaid expenses, and (2) $0.9 million due to increases in accounts receivable.

We believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash requirements for the foreseeable future.

Financing activities for 2020 include higher loan borrowings of $320.0 million primarily due to the issuance of $300 million of Senior Notes, offset by (1) higher repayments of revolving and term loan borrowings as the proceeds from the issuance of the Senior Notes were used to repay $290.7 million of outstanding term and revolving loan borrowings under the Facility, and (2) a decrease in dividends paid of $9.8 million.

Share Repurchases

In the second quarter of 2022, the Company adopted a new share repurchase program in which the Company is authorized to repurchase up to $100 million of its outstanding shares of common stock.

The program has no specific expiration date.

During 2022, the Company repurchased and retired an aggregate of 1,383,682 shares at a weighted average price of $12.41 per share, or $17.2 million, pursuant to this program.

As of January 1, 2023, approximately $82.8 million remains authorized pursuant to this program for future share repurchases.

The program does not require the Company to repurchase a specific number or amount of shares, or to do so within any specific time periods.

Syndicated Credit Facility

In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our Syndicated Credit Facility (the “Facility”).

In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our Facility.

At January 1, 2023, the Facility provided the Company and certain of its subsidiaries with a multicurrency revolving loan facility up to $300 million, as well as other U.S.

denominated and multicurrency term loans.

On October 14, 2022, in connection with the fifth amendment to the Facility, the maturity date was extended to October 2027.

Material terms under the Facility are discussed below.

2 unchanged sentences

Under the Facility, interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 2.00%, depending on the Company’s consolidated net leverage ratio (as defined in the Facility agreement) as of the most recently completed fiscal quarter.

Interest on Eurocurrency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable Eurocurrency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.

Interest on Eurocurrency-based loans (or SOFR-based and alternative currency loans following the fifth amendment to the Facility as discussed below) and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable Eurocurrency rate (or SOFR rate or alternative currency rate following the fifth amendment to the Facility as discussed below), depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.

In addition, the Company pays a commitment fee ranging from 0.20% to 0.40% per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.

Ta b le of Contents

LIBOR Transition

6 unchanged sentences

Treasury securities.

We have exposure to LIBOR-based financial instruments under the Facility, which has variable (or floating) interest rates based on LIBOR.

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

On December 9, 2021, we entered into the fourth amendment to the Facility 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, to amend certain provisions related to the implementation, use and administration of successor benchmark rates, and to set forth certain borrowing requirements in the event LIBOR and other successor rates become unavailable.

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.

On December 9, 2021 and October 14, 2022, we entered into the fourth and fifth amendments, respectively, to our Facility.

These amendments, among other changes, replaced the LIBOR benchmark rates with specified successor benchmark rates, including SOFR benchmark interest rates applicable to all loans denominated in U.S.

The Facility contains standard and customary covenants for agreements of this type, including various reporting, affirmative and negative covenants.

8 unchanged sentences

• enter into sale and leaseback transactions.

Tab le of Contents

The Facility also requires us to remain in compliance with the following financial covenants as of the end of each fiscal quarter, based on our consolidated results for the year then ended:

12 unchanged sentences

and our domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries.

If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

As of January 2, 2022, we had outstanding $217.6 million of term loan borrowing and $7.5 million of revolving loan borrowings under the Facility, and had $1.6 million in letters of credit outstanding under the Facility.

As of January 2, 2022, the weighted average interest rate on borrowings outstanding under the Facility was 1.91%.

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 receivable, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

Ta b le of Contents

Under the Facility, we are required to make quarterly amortization payments of the term loan borrowings.

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

We are currently in compliance with all covenants under the Facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.

We are in compliance with all covenants under the Facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.

In the fourth quarter of 2020, we terminated our interest rate swaps and paid approximately $13 million to terminate the swap agreements.

2 unchanged sentences

The Senior Notes bear an interest rate at 5.50% per annum and mature on December 1, 2028.

Interest is paid semi-annually on June 1 and December 1 of each year, beginning on June 1, 2021.

Interest is paid semi-annually on June 1 and December 1 of each year.

The Company used the net proceeds to repay $269.7 million of outstanding term loan borrowings and $21.0 million of outstanding revolving loan borrowings under the Facility.

1 unchanged sentence

These debt issuance costs were recorded as a reduction of long-term debt in the consolidated balance sheets and will be amortized over the life of the outstanding debt.

Tab le of Contents

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.

The Company’s foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors.

Net sales for the non-guarantor subsidiaries were approximately $594 million for fiscal year 2021 and $548 million for fiscal year 2020.

Net sales for the non-guarantor subsidiaries were approximately $597 million for fiscal year 2022, $594 million for fiscal year 2021, and $548 million for fiscal year 2020.

Total indebtedness of the non-guarantor subsidiaries was approximately $43 million as of January 1, 2023, and $45 million as of January 2, 2022.

1 unchanged sentence

See Note 9 entitled “Long-Term Debt” in Item 8 of this Report for additional information.

Forward-Looking Statement on Impact of COVID-19

While we are aggressively managing our response to the COVID-19 pandemic, its impacts on our full fiscal year 2022 results and beyond are uncertain.

Forward-Looking Statements

The Company continues to be challenged by high inflation and a dynamic geopolitical environment.

We e xpect these impacts to include significant cost increases in our raw materials globally and continued labor cost increases.

The impacts may also potentially include raw material shortages, higher freight costs, shipping delays, and other disruptions.

These impacts to our supply chain and manufacturing will increase our costs and adversely affect our gross margins, they may inhibit our ability to manufacture and ship product timely, and at times they may inhibit our ability to meet customer demands and expectations.

To mitigate these impacts, we plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.

The COVID-19 pandemic and global supply chain disruptions continue to impact areas where we sell our products and services — most recently in China.

Its impacts on our full fiscal year 2023 results and beyond are uncertain.

We believe the most significant elements of uncertainty are (1) the intensity and duration of the impact on construction, renovation, and remodeling;

1 unchanged sentence

(3) the ability of our sales channels, supply chain, manufacturing, and distribution partners to continue operating through disruptions;

and (4) the severity of global supply chain disruptions and their effects on inflation, labor shortages, raw material shortages, and other factors that disrupt our supply chain and manufacturing facilities.

and (4) the severity of global supply chain disruptions and their effects on inflation, labor costs, raw material shortages, and other factors that disrupt our supply chain and manufacturing facilities.

Any or all of these factors could negatively impact our financial position, results of operations, cash flows, and outlook.

2 unchanged sentences

However, the Company’s cash flows from operations can be affected by numerous factors including the uncertainty of COVID-19 and its impact on global operations, raw material availability and cost, demand for our products, and other factors described in “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

Tab le of Contents

Ta b le of Contents

Critical Accounting Policies and Estimates

4 unchanged sentences

Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated.

If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment is indicated.

A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset.

7 unchanged sentences

These sources of income inherently rely heavily on estimates.

We use our historical experience and our short and long-term business forecasts to provide insight.

We use our historical experience and our short-term and long-term business forecasts to provide insight.

Further, our global business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions.

4 unchanged sentences

If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.

Prior to the adoption of Accounting Standards Update (“ASU”) 2017-04 “Intangibles-Goodwill and Other”, we tested goodwill for impairment at least annually using a two-step approach.

In the first step of this approach, we prepared valuations of reporting units, using both a market comparable approach and an income approach, and those valuations were compared with the respective book values of the reporting units to determine whether any goodwill impairment existed.

In preparing the valuations, past, present and expected future performance was considered.

If impairment was indicated in this first step of the test, a step two valuation approach was performed.

The step two valuation approach compared the implied fair value of goodwill to the book value of goodwill.

The implied fair value of goodwill was determined by allocating the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit, including both recognized and unrecognized intangible assets, in the same manner as goodwill is determined in a business combination under applicable accounting standards.

After completion of this step two test, a loss was recognized for the difference, if any, between the fair value of the goodwill associated with the reporting unit and the book value of that goodwill.

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 described above.

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.

Tab le of Contents

In accordance with applicable accounting standards, the Company tests goodwill for impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Management’s assessment of whether a triggering event has occurred and the development of any forecasts to be used in the fair value determination are subject to judgement.

During the fourth quarters of 2021, 2020 and 2019, we performed the annual goodwill impairment test.

We perform this test at the reporting unit level.

For our reporting units which carried a goodwill balance as of January 2, 2022, no impairment of goodwill was indicated.

As of January 2, 2022, if our estimates of the fair value of our reporting units were 10% lower, we believe no additional goodwill impairment would have existed.

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

If the actual fair value of the goodwill is determined to be less than that estimated, an additional write-down may be required.

We review the carrying values of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying value of each reporting may exceed its fair value as set forth in Accounting Standards Codification 350 “ Intangibles — Goodwill and Other ”, as amended by Accounting Standards Update (“ASU”) 2017-04 .

We test goodwill at the reporting unit level, which is an operating segment or one level below an operating segment.

We utilize the present value of expected future cash flows and the guideline public company method to determine the estimated fair value of our reporting units.

The present value model requires management to estimate future cash flows, the timing of these cash flows, and a discount rate based on a weighted average cost of capital.

The assumptions we use to estimate future cash flows and the development of any forecasts to be used in the fair value determination are subject to inherent risk and judgement.

If we determine that the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired.

If we determine that the carrying value of the reporting unit exceeds its estimated fair value, we measure the goodwill impairment charge based on the excess of the reporting unit’s carrying value over its fair value consistent with ASU 2017-04, “ Simplifying the Test for Goodwill Impairment ”, which we adopted on December 30, 2019.

Ta b le of Contents

During the fourth quarter of 2022, we performed our annual goodwill quantitative testing.

We considered factors such as, but not limited to, our expectations for the short-term and long-term impacts of macroeconomic factors, including ongoing inflation, foreign currency exchange rates, and our expected financial performance, including planned revenue and operating income of each reporting unit.

The discount rate used for each reporting unit ranged from 13.5% to 14.0%, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit.

For fiscal 2022, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired.

We recorded a goodwill impairment charge of $29.4 million to write off all the goodwill allocated to our EMEA reporting unit as the excess of carrying value over fair value was higher than the recorded amount of goodwill for the reporting unit.

The fair value of our Americas reporting unit exceeded its carrying value by 71%, and the Americas reporting unit was not impaired as of the 2022 measurement date.

The Americas reporting unit had a goodwill balance of $102.4 million at the end of fiscal 2022.

The goodwill balance allocated to our Asia-Pacific reporting unit was previously written off in connection with the 2020 goodwill impairment, as described below.

We have not made any material changes to our goodwill impairment loss assessment methodology during the past three fiscal years.

Currently, we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses.

However, we cannot predict or control market factors, including the impact of macroeconomic conditions and the impact of certain risks inherent to our operations, as described in Item 1A “Risk Factors” of this Annual Report.

If actual results are not consistent with our assumptions and estimates, we may be exposed to additional goodwill impairment losses that could be material.

During the fourth quarters of 2021 and 2020 we performed the annual goodwill impairment test consistent with the methodology described above, and all reporting units that had a goodwill balance were noted to have a fair value that exceeded their carrying value.

In the first quarter of 2020, we performed a quantitative goodwill impairment test as there were indicators of impairment due to the impact of COVID-19 to our operations.

As a result, in the first quarter of 2020, we determined that our EMEA and Asia-Pacific reporting units were impaired and recorded goodwill impairment charges of $99.2 million and $17.3 million, respectively.

See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.

We determine the value of inventories using the lower of cost or net realizable value.

3 unchanged sentences

Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions.

While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future.

While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences may continue to change, and we could experience additional inventory write-downs in the future.

Our inventory reserve on January 1, 2023 and January 2, 2022, was $28.5 million and $27.1 million, respectively.

To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2022 net income would be higher or lower by approximately $1.3 million, on an after-tax basis.

Ta b le of Contents

Pension Benefits.

15 unchanged sentences

1% decrease in actuarial assumption for discount rate 2.2

Tab le of Contents

Allowances for Expected Credit Losses.

15 unchanged sentences

Please see Note 2 entitled “Recent Accounting Pronouncements” in Item 8 of this Report for discussion of these items.

Tab le of Contents

Ta b le of Contents

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

What changed 10-K

Item 7. Management’s Discussion and Analysis