What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-02 · 316 added, 324 removed, 1268 unchanged (34% of the section changed)

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Cost of sales 860,186 767,665 692,688

Gross profit on sales 432,733 410,574 532,967

Gross profit 437,733 432,733 410,574

Selling, general and administrative expenses 324,190 324,315 333,229

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See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

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See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

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See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

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See accompanying notes to consolidated financial statements.

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INTERFACE, INC.

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Nature of Operations

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

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

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

The Company also manufactures and sells resilient rubber flooring.

In the first quarter of 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas, and determined that it has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”).

The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas.

The Company has determined that it has two operating and reportable segments – namely Americas (“AMS”) which includes the United States, Canada and Latin America geographic areas, and Europe, Africa, Asia and Australia (collectively “EAAA”).

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

Cybersecurity Event

On November 20, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems.

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.

Principles of Consolidation

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requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.

Examples include provisions for returns, bad debts, product claims reserves, rebates, inventory obsolescence and the length of product life cycles, accruals associated with restructuring activities, income tax exposures and valuation allowances, environmental liabilities, and the carrying value of goodwill and property, plant and equipment.

Actual results could vary from these estimates.

Risks and Uncertainties

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and many companies have experienced disruptions in their operations.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that, except for the impact to our gross margins and our global supply chain in 2021, the 2020 goodwill and intangible asset impairment discussed in Note 12 entitled “Goodwill and Intangible Assets,” the decline in 2020 revenue, and its consequent impacts on production volume, operating income, net income, cash flows, and order rates, there were no other material adverse impacts on the Company’s results of operations and financial position at January 2, 2022.

The Company’s Syndicated Credit Facility has various financial and other covenants including, but not limited to, a covenant to not exceed a maximum net debt to EBITDA ratio, as defined by the credit facility agreement.

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

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

The full extent of the future impact of COVID-19 on the Company’s operations is uncertain.

A prolonged COVID-19 pandemic may continue to have a material adverse impact on our operations, financial condition, and supply chains.

It may negatively impact our ability to collect outstanding receivables, manage inventory, and service customers.

The impact of COVID-19 could result in additional impairment losses related to goodwill, intangible assets, and property, plant and equipment.

As the virus spreads through communities, it could impact the physical health, mental health, and productivity of our workforce as many of them are required to shelter in place and work from home for prolonged periods of time, and it could also impact our ability to reach our customers and collaborate with them as they are required to shelter in place and work from home for prolonged periods of time.

The COVID-19 pandemic is having broad and negative implications on the global economy, which affects the size and timing of our customers’ capital budgets, and could result in delays or terminations of new and existing renovation projects, remodeling projects, new construction projects, and other projects where our products are used.

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Global economic challenges, including the impact of the COVID-19 pandemic, the war in Ukraine, rising inflation and supply chain disruptions could cause economic uncertainty and volatility.

In connection with the Cyber Event discussed above, security breaches may expose us to fines and other liabilities to the extent sensitive data stored in our IT systems, including data related to customers, suppliers or employees, are misappropriated.

Any potential fine or other liability is not probable nor estimable at this time.

Accordingly, pursuant to applicable accounting standards, no accrual has been recorded for any contingent liability arising out of the 2022 Cyber Event.

The Company considered these impacts and subsequent general uncertainties and volatility in the global economy on the assumptions and estimates used herein, including the goodwill and intangible asset impairments discussed in Note 12 entitled “Goodwill and Intangible Assets.” These uncertainties could result in a future material adverse effect to the Company’s financial statements if actual results differ from these estimates.

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COVID-19 Impact

We continue to monitor our operations and have implemented various programs to mitigate the effects of COVID-19 on our business including reductions in employee headcount, labor costs, marketing expenses, consulting spend, travel costs, capital expenditures, and other cost reduction or avoidance initiatives.

Government grants and payroll protection programs have been available globally to provide assistance to companies impacted by the pandemic.

The Coronavirus Aid, Relief and Economic Security Act (“ CARES Act”) enacted in the United States (see Note 17 entitled “ Income Taxes ” for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”) have provided benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments.

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

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.

During fiscal year 2022, the COVID-19 pandemic had less of an impact on our overall financial results as 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 % in 2022 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.

During fiscal year 2020, in connection with the COVID-19 pandemic, government grants and payroll protection programs were available globally to provide assistance to companies impacted by the pandemic.

The Coronavirus Aid, Relief and Economic Security Act (“ CARES Act”) enacted in the United States (see Note 17 entitled “ Income Taxes ” for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”) provided benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments.

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

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

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The performance obligation is the delivery of these materials to the customer’s control.

During 2021, 2020 and 2019, approximately 98 % of the Company’s total revenue was produced from the sale of carpet, resilient flooring, rubber flooring, and related products (TacTiles installation materials, etc.) and the revenue from sales of these products is recognized upon shipment, or in certain cases, upon delivery to the customer.

Revenue from the sale of modular carpet, resilient flooring, rubber flooring, and related products (TacTiles installation materials, etc.) was approximately 97 % of the Company’s total revenue in 2022 and approximately 98 % of the Company’s total revenue in both 2021 and 2020.

The revenue from sales of these products is recognized upon shipment, or in certain cases, upon delivery to the customer.

The transaction price for these sales is readily identifiable.

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

The remaining revenue generated by the Company is for contracts to sell and install carpet and related products at customer locations.

For projects underway, the Company recognized installation revenue over time based on a project cost input method as the customer simultaneously received and consumed the benefit of the services.

The remaining revenue of approximately 3 % for 2022 and approximately 2 % for both 2021 and 2020 was generated from the installation of carpet and other flooring-related material.

For installation projects underway, the Company recognized installation revenue over time based on a project cost input method as the customer simultaneously received and consumed the benefit of the services.

The installation of the carpet and related products is a separate performance obligation from the sale of carpet.

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The Company does not have any other significant revenue streams outside of these sales of flooring material, and the sale and installation of flooring material, as described above.

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The Company does not record taxes collected from customers and remitted to governmental authorities within revenues.

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

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Performance Obligations

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Research and development costs are expensed as incurred and are included in selling, general and administrative (“SG&A”) expenses and cost of sales in the consolidated statements of operations.

Research and development expense includes costs associated with the improvement and enhancement of existing products.

Research and development expense was $ 19.1 million, $ 19.3 million, and $ 18.6 million for the years 2022, 2021 and 2020, respectively.

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Cash payments for interest amounted to approximately $ 25.1 million, $ 22.9 million, and $ 32.0 million for the years 2022, 2021 and 2020, respectively.

2020 includes cash payments of $ 12.5 million to terminate the Company’s interest rate swap liabilities.

Fiscal year 2020 includes cash payments of $ 12.5 million to terminate the Company’s interest rate swap liabilities.

Income tax payments amounted to approximately $ 31.4 million, $ 23.1 million and $ 19.3 million for the years 2022, 2021 and 2020, respectively.

During the years 2022, 2021 and 2020, the Company received income tax refunds of $ 12.4 million, $ 5.4 million and $ 7.5 million, respectively.

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Allowances for Expected Credit Losses

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By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that the Company is unable to collect may be different than the amount initially estimated.

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

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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 the Company’s products, and current economic conditions.

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

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

The Company has agreements to receive cash consideration from certain of its vendors, including rebates and cooperative marketing reimbursements.

The amounts received from its vendors are generally presumed to be a reduction of the prices the Company pays for their products and, therefore, such amounts are reflected as either a reduction of cost of sales in the accompanying consolidated statements of operations, or, if the inventory is still on hand at the reporting date, it is reflected as a reduction of “Inventories” on the accompanying consolidated balance sheets.

Vendor rebates are typically dependent upon reaching minimum purchase thresholds.

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

Property and Equipment and Long-Lived Assets

Property and equipment are carried at cost.

Property, Plant and Equipment and Long-Lived Assets

Property, plant and equipment are carried at cost.

Depreciation is computed using the straight-line method over the following estimated useful lives:

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The Company capitalized net interest costs on qualifying expenditures of approximately $ 0.1 million, $ 0.5 million, and $ 1.9 million for the fiscal years 2022, 2021 and 2020, respectively.

Depreciation expense amounted to approximately $ 41.9 million, $ 42.4 million, and $ 41.5 million for the years 2021, 2020 and 2019 respectively.

Total depreciation expense amounted to approximately $ 36.3 million, $ 41.9 million, and $ 42.4 million for the years 2022, 2021 and 2020 respectively.

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Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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

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Goodwill and Intangible Assets

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In addition, during the first quarter of 2020—primarily due to anticipated impacts of the COVID-19 pandemic—the Company determined that there were indicators of impairment, and the Company proceeded with a goodwill impairment test as of the end of the first quarter.

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

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

In performing the impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed.

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Trademark and tradename intangible assets acquired in connection with the nora acquisition are not subject to amortization, but are tested for impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the intangible asset below its carrying amount.

In the fourth quarter of 2022, we determined that the trademark and trade name intangible assets were impaired.

During the first quarter of 2020—primarily due to anticipated impacts of the COVID-19 pandemic—the Company determined that there were indicators of impairment, and the Company proceeded with an impairment test as of the end of the first quarter.

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

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

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

Product Warranties

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The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date.

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The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable.

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

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Fair Values of Financial Instruments

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Translation of Foreign Currencies

The financial position and results of operations of the Company’s foreign subsidiaries are measured using local currencies as the functional currency.

The financial position and results of operations of most of the Company’s foreign subsidiaries are measured using local currencies as the functional currency.

Assets and liabilities of these subsidiaries are translated into U.S.

dollars at the exchange rate in effect at each year-end.

Income and expense items are translated at average exchange rates for the year.

Income and expense items are translated each month at average monthly exchange rates throughout the year.

The resulting translation adjustments are recorded in the foreign currency translation adjustment account.

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

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

Foreign exchange translation gains (losses) were $( 38.3 ) million, $( 40.1 ) million, and $ 52.8 million for the years 2022, 2021 and 2020, respectively.

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Cash flows from all derivative instruments, including those not designated as hedging instruments, are classified in the same category as the cash flows from the items being hedged.

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Pension Benefits

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

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Reclassifications

In the first quarter of 2021, the Company determined that it has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”).

The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas.

Segment disclosures for 2020 and 2019 have been restated to conform to the current reportable segment structure.

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

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

Previously, these costs were presented as a component of cost of sales.

Beginning in 2020, these costs are presented as a component of SG&A expense.

The Company determined that this change better reflects how management views and operates the business.

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

Fiscal Year 2019

Statement of Operations Line Item As Reported Reclassification As Reclassified

(in thousands)

Cost of sales $ 817,575 $ ( 7,513 ) $ 810,062

Selling, general and administrative expenses 381,604 7,513 389,117

Total $ 1,199,179 $ — $ 1,199,179

The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest December 31.

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

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

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All references herein to “2022,” “2021,” and “2020,” mean the fiscal years ended January 1, 2023, January 2, 2022, and January 3, 2021, respectively.

Fiscal years 2022 and 2021 are both comprised of 52 weeks, and 2020 is comprised of 53 weeks.

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NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On January 4, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, “ Simplifying the Accounting for Income Taxes .” The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740 related to intraperiod tax allocation, the calculation of income taxes in interim periods, and the accounting for outside basis differences of foreign subsidiaries and equity method investments.

The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740, including franchise or similar taxes partially based on income, the accounting for a step-up in tax basis goodwill, and interim recognition of an enacted change in tax laws or rates, by clarifying and amending existing guidance.

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

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

Disclosures by Business Entities about Government Assistance.

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

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

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

Recently Issued Accounting Pronouncements - Not Yet Adopted

In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-03, “ Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .” This ASU clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value.

The ASU also requires certain disclosures for equity securities subject to contractual sale restrictions.

The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

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

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

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .” This standard addresses the risks from the discontinuation of the London Interbank Offered Rate (LIBOR) and provides optional expedients and exceptions to contracts, hedging relationships and other transactions that reference LIBOR if certain criteria are met.

This new guidance is effective and may be applied beginning March 12, 2020 through December 31, 2022.

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

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

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

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This ASU is not expected to have a material impact to the Company’s consolidated financial statements.

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NOTE 3 – REVENUE RECOGNITION

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

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

Revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material was approximately 97 % of total revenue for 2022 and approximately 98 % of total revenue for both 2021 and 2020.

The remaining revenue was generated from the installation of carpet and other flooring-related material, which was approximately 3 % of total revenue for 2022 and approximately 2 % of total revenue for both 2021 and 2020.

Disaggregation of Revenue

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

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NOTE 4 – RECEIVABLES

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As of January 1, 2023 and January 2, 2022, the allowance for expected credit losses amounted to $ 4.0 million and $ 5.0 million, respectively, for all accounts receivable of the Company.

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NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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January 1, 2023 January 2, 2022

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

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

(in thousands)

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Deferred Compensation Investments

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

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

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

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

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

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

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

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Syndicated Credit Facility and Senior Notes

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See Note 19 entitled “Employee Benefit Plans” for additional information on defined benefit plan assets.

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NOTE 6 – INVENTORIES

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Reserves for inventory obsolescence amounted to $ 28.5 million and $ 27.1 million as of January 1, 2023 and January 2, 2022, respectively, and have been netted against amounts presented above.

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NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

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As of January 1, 2023 and January 2, 2022, construction-in-progress was approximately $ 24.1 million and $ 44.6 million, respectively.

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NOTE 8 – ACCRUED EXPENSES

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Accrued expenses $ 120,138 $ 146,298

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NOTE 9 – LONG-TERM DEBT

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At January 1, 2023, the Company had available borrowing capacity of $ 274.1 million under the revolving loan facility.

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

The purpose of this amendment was to provide for certain provisions, including but not limited to the following:

• the amendment of certain covenants in the Facility to add new exceptions which allowed the Company and its subsidiaries to accomplish certain intercompany investments and other intercompany transactions desired to be made by the Company and its subsidiaries, and

• amendments to add provisions relating to treatment of certain qualified financial contracts, to modify certain existing provisions dealing with the replacement of LIBOR as a benchmark interest rate with an alternative benchmark rate in the event that LIBOR in the future ceases to be available as a benchmark rate.

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Significant Facility Amendments

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

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These costs will be amortized over the life of the outstanding debt.

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On November 17, 2020, the Company entered into a third amendment to its Facility.

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

On October 14, 2022, the Company entered into a fifth amendment to its Facility.

The fifth amendment provided for, among other changes, the following amendments to the Facility:

• the amendment of the maturity date of the Facility to October 2027;

• amendments to replace the LIBOR benchmark interest rates applicable to all loans denominated in U.S.

dollars with the SOFR benchmark interest rates.

In connection with the fifth amendment, the Company recognized a loss on extinguishment of debt of $ 0.1 million within interest expense in the consolidated statement of operations and recorded approximately $ 1.0 million of debt issuance costs.

Of this amount, approximately $ 0.4 million of debt issuance costs associated with term loan borrowings was recorded as a reduction of long-term debt, and approximately $ 0.7 million of debt issuance costs associated with revolving loan borrowings was recorded in other assets in the consolidated balance sheet.

Interest Rates and Fees

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 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) 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), 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.

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

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• incur indebtedness or contingent obligations;

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

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Pursuant to a Second Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of the Company’s domestic subsidiaries and up to 65 % of the stock of its 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.

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.

As of both January 1, 2023 and January 2, 2022, the Company had $ 1.6 million in letters of credit outstanding under the Facility.

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

The Company is currently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.

The Company is in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.

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5.50% Senior Notes due 2028

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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 approximately $ 269.7 million of outstanding term loan borrowings and approximately $ 21.0 million of outstanding revolving loan borrowings under its existing Facility.

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The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its existing Facility.

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On or after December 1, 2023, the Company may redeem the Senior Notes, in whole or in part, at any time at the redemption prices listed below, plus accrued and unpaid interest, if any, to (but excluding) the redemption date, if redeemed during the 12-month period commencing on December 1 of the years set forth below:

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• sell or transfer certain assets.

The Company is in compliance with all covenants under the indenture governing the Senior Notes and anticipates that it will remain in compliance with the covenants for the foreseeable future.

Events of Default

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If an event of default exists and is continuing, the terms of the indenture permit the trustee or the holders of at least 25 % in principal amount of outstanding Senior Notes to declare the principal, premium, if any, and accrued but unpaid interest on all the Senior Notes to be due and payable.

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Other Lines of Credit

Subsidiaries of the Company have an aggregate of the equivalent of $ 6.0 million of other lines of credit available at interest rates ranging from 3.5 % to 6.0 %.

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

Borrowing Costs

Other than its Facility, there were no other lines of credit available to the Company as of January 1, 2023.

Debt Issuance Costs

Debt issuance costs associated with the Company’s Senior Notes and term loans under the Facility are reflected as a reduction of long-term debt in accordance with applicable accounting standards.

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Expenses related to such costs for the years 2022, 2021 and 2020 amounted to $ 1.2 million, $ 1.6 million, and $ 1.7 million, respectively.

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

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

Debt issuance costs related to the issuance of revolving debt, which include underwriting, legal and other direct costs, net of accumulated amortization, were $ 1.8 million and $ 1.6 million, as of January 1, 2023 and January 2, 2022, respectively.

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

The Company amortizes these costs over the life of the related debt.

Expenses related to such costs for the years 2021, 2020 and 2019 amounted to $ 0.4 million, $ 0.4 million, and $ 0.4 million, respectively.

Expenses related to such costs amounted to $ 0.4 million for each of the years 2022, 2021 and 2020.

Future Maturities

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Total debt $ 526,332

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

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Total long-term debt in the consolidated balance sheets includes a reduction for unamortized debt issuance costs of $ 6.1 million which are excluded from the maturities table above.

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NOTE 10 – DERIVATIVE INSTRUMENTS

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The termination resulted in a loss of $ 3.9 million recorded in interest expense in the consolidated statements of operations in 2020 as it was probable that a portion of the original forecasted transactions related to the portion of the hedged debt that was repaid will not occur by the end of the originally specified time period.

As of January 2, 2022 and January 3, 2021, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps was $ 3.8 million and $ 8.7 million, respectively, and will be amortized to earnings over the remaining term of the interest rate swaps prior to termination.

As of January 1, 2023 and January 2, 2022, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps, before tax, was $ 1.0 million and $ 3.8 million, respectively, and will be amortized to earnings over the remaining term of the interest rate swaps prior to termination.

We expect that approximately $ 1.0 million, before tax, related to the terminated interest rate swaps will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.

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The Company’s objective and strategy with respect to these currency forward contracts is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to receipt of payment on intercompany sales.

The Company is meeting its objective by hedging the risk of changes in its cash flows (intercompany payments for inventory) attributable to changes in the U.S.

dollar/Euro exchange rate (the “hedged risk”).

Changes in fair value attributable to components other than exchange rates are excluded from the assessment of effectiveness and amortized to earnings on a straight-line basis.

Changes in fair value related to the effective portion of these contracts are reflected as a component of other comprehensive income (or other comprehensive loss).

As of January 1, 2023 and January 2, 2022, there were no active forward currency contracts.

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Gains and losses on the changes in fair value of these foreign currency options are recognized in earnings each period.

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

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

Asset Derivatives as of January 3, 2021 Liability Derivatives as of January 3, 2021

Balance Sheet

Location Fair Value Balance Sheet

Location Fair Value

(in thousands)

Derivative instruments designated as hedging instruments:

Interest rate swap contracts Other current assets $ — Accrued expenses $ —

Derivative instruments not designated as hedging instruments:

Foreign currency options Other current assets 37 Accrued expenses —

As of January 1, 2023 and January 2, 2022, the Company had no outstanding foreign currency options.

The following table summarizes the impact that changes in the fair value of derivatives designated as cash flow hedges and included in the assessment of hedge effectiveness had on other comprehensive income (loss), net of tax:

(in thousands)

Foreign currency contracts gain $ — $ 468

Interest rate swap contracts loss $ ( 2,027 )

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

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

The following table summarizes gains and losses on derivatives not designated as hedging instruments within the consolidated statements of operations:

Statement of Operations Location 2021 2020 2019

(in thousands)

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

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NOTE 11 – LEASES

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Our lease accounting may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option.

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

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

As of January 1, 2023, there were no significant leases that had not commenced.

The table below represents a summary of the balances recorded in the consolidated balance sheets related to the Company’s leases as of January 1, 2023 and January 2, 2022:

January 1, 2023 January 2, 2022

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Total lease cost $ 24,859 $ 28,182 $ 31,045

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Other Supplemental Information

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Total lease liability $ 84,162 $ 6,239

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NOTE 12 – GOODWILL AND INTANGIBLE ASSETS

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

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

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

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

During the first quarter of 2020, we performed a qualitative assessment of goodwill impairment indicators, considering macroeconomic conditions related to the COVID-19 pandemic and its potential impact to sales and operating income.

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

T he Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, utilizing a combination of the present value of expected future cash flows and the guideline public company method to determine the estimated fair value of our reporting units.

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

In preparing the valuations, past, present and future expectations of performance were considered, including our expectations for the short-term and long-term impacts of macroeconomic conditions, including inflation, foreign currency exchange rates and our expected financial performance, including planned revenue and operating income of each reporting unit.

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 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.

There is inherent uncertainty associated with key assumptions and estimates used in our impairment testing, including the impact of macroeconomic conditions.

As a result of our 2022 annual goodwill testing, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired at the measurement date.

We recorded a goodwill impairment charge of $ 29.4 million in 2022 to write off all the goodwill allocated to our EMEA reporting unit, as the excess of carrying value over fair value exceeded the recorded amount of goodwill for the EMEA reporting unit.

Macroeconomic factors, including inflation, foreign currency exchange rates, and the expected impact to planned revenue and operating income contributed to the lower estimated fair value of our EMEA reporting unit.

Higher discount rates also contributed to the lower fair value of our reporting units.

We determined that the fair value of our Americas reporting unit exceeded its carrying value by 71 % at the 2022 m easurement date, and therefore no impairment was indicated.

The remaining goodwill balance of $ 102.4 million at January 1, 2023 is allocated to our Americas reporting unit.

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

During the fourth quarters of 2021 and 2020, the Company performed the annual goodwill impairment test, consistent with the methodology discussed above.

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

In preparing the valuations, past, present and future expectations of performance were considered, including the ongoing impact of the COVID-19 pandemic in 2021 and 2020.

Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the measurement dates, and therefore no impairment was indicated as a result of the annual impairment testing in the fourth quarters of 2021 and 2020.

We expected that the duration of the COVID-19 pandemic and its adverse impacts on the global economy, global travel restrictions, COVID-19 related government shutdowns, disruptions to our supply chain, distribution disruption, and disruption to our customers’ plans to spend capital on projects that use our products and services would result in lower revenue and operating income.

As a result, we determined that there were indicators of impairment, and the Company proceeded with a quantitative assessment of goodwill for all reporting units at the end of the first quarter.

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In performing the quantitative goodwill impairment testing in the first quarter of 2020, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed.

Our reporting units are one level below our operating segment level.

Our reporting units were one level below our operating segment level.

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

This methodology is consistent with the approach used to perform the annual quantitative goodwill assessment in prior years.

This methodology was consistent with the approach used to perform the annual quantitative goodwill assessment in prior years.

The weighted average cost of capital used in the goodwill impairment testing ranged between 10.0 % and 10.5 %, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit.

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We determined that the goodwill in our Americas reporting unit was not impaired as the fair value exceeded the carrying value by more than 90 % at April 5, 2020.

During the fourth quarters of 2021, 2020 and 2019, the Company performed the annual goodwill impairment test, consistent with the methodology discussed above.

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

In preparing the valuations, past, present and future expectations of performance were considered, including the ongoing impact of the COVID-19 pandemic in 2021 and 2020.

Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the measurement date, and therefore no impairment was indicated as a result of the annual impairment testing.

As of January 2, 2022, if the Company’s estimates of the fair values of its reporting units which carry a goodwill balance were 10 % lower, the Company still believes no goodwill impairment would have existed.

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

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

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

The ending balances and the changes in the carrying amounts of goodwill allocated to each reportable segment for the years ended January 1, 2023 and January 2, 2022 are as follows:

AMS EAAA Total

(in thousands)

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

Impairment — ( 116,495 ) ( 116,495 )

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

Foreign currency translation (1)

( 13,839 ) ( 4,913 ) ( 18,752 )

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

Impairment — ( 29,384 ) ( 29,384 )

Foreign currency translation (1)

( 6,088 ) ( 9,136 ) ( 15,224 )

Goodwill balance, at January 1, 2023 $ 102,417 $ — $ 102,417

In the first quarter of 2020, we determined that the trademarks and trade names intangible assets related to the acquired nora business were also impaired and recognized an impairment loss of $ 4.8 million.

(1) A portion of the goodwill balance allocated to the AMS reportable segment is comprised of goodwill denominated in foreign currency attributable to the nora acquisition.

Intangible Assets

In the fourth quarter of 2022, we determined that the trademark and trade name intangible assets related to the acquired nora business were impaired and recognized an impairment loss of $ 6.3 million .

The impairment loss consisted of charges of $ 3.6 million and $ 2.7 million attributable to the AMS and EAAA reportable segments, respectively.

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

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

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

In the first quarter of 2020, we determined that the trademark and trade name intangible assets related to the acquired nora business were also impaired and recognized an impairment loss of $ 4.8 million.

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

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The Company’s intangible assets other than goodwill consisted of the following as of January 1, 2023 and January 2, 2022 (1) :

January 1, 2023 January 2, 2022

Gross Carrying Amount Accumulated Impairment Accumulated Amortization Net Carrying Amount Gross Carrying Amount (2)

Accumulated Impairment Accumulated Amortization (2)

Net Carrying Amount

(in thousands)

Intangible assets subject to amortization:

Technology $ 36,069 $ — $ ( 22,854 ) $ 13,215 $ 38,330 $ — $ ( 18,850 ) $ 19,480

Other 764 ( 478 ) ( 17 ) 269 1,458 — ( 818 ) 640

Total intangible assets subject to amortization 36,833 ( 478 ) ( 22,871 ) 13,484 39,788 — ( 19,668 ) 20,120

Indefinite-lived intangible assets:

Trademarks and trade names 57,375 ( 11,081 ) — 46,294 60,822 ( 4,763 ) — 56,059

Total intangible assets $ 94,208 $ ( 11,559 ) $ ( 22,871 ) $ 59,778 $ 100,610 $ ( 4,763 ) $ ( 19,668 ) $ 76,179

(1) Certain intangible asset balances are subject to changes attributable to foreign currency translation.

(2) Net of a $ 3.3 million write off for fully amortized backlog intangible assets.

Amortization expense related to intangible assets during the years 2022, 2021 and 2020 was $ 5.0 million, $ 5.6 million and $ 5.5 million, respectively, and is recorded in cost of sales in the consolidated statements of operations.

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

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

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Amortization expense related to intangible assets is expected to be approximately $ 5 million per year for fiscal years 2023 and 2024 and approximately $ 3 million for fiscal year 2025.

The developed technology intangible asset will be amortized over its estimated useful life, which ends in fiscal year 2025.

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NOTE 13 – PREFERRED STOCK

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As of January 1, 2023 and January 2, 2022, there were no shares of preferred stock issued.

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NOTE 14 – SHAREHOLDERS’ EQUITY

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The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE.

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

The Company paid cash dividends totaling $ 0.04 per share in both 2022 and 2021, and $ 0.095 per share in 2020, to each share of Common Stock, including participating securities.

The future declaration and payment of dividends is at the discretion of the Company’s Board, and depends upon, among other things, the Company’s investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant at the time of the Board’s determination.

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As such, the Company may discontinue its dividend payments in the future if its Board determines that a cessation of dividend payments is proper in light of the factors indicated above.

In the second quarter of 2017, the Company adopted a share repurchase program in which the Company was authorized to repurchase up to $ 100 million of its outstanding shares of common stock.

The program had no specific expiration date.

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

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

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, pursuant to this program.

All treasury stock is accounted for using the cost method.

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Cash dividends declared — — — ( 2,355 ) — — —

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

Compensation expense related to stock awards, net of forfeitures and shares received for tax withholdings ( 66 ) ( 6 ) 8,132 — — — —

Share repurchases ( 1,384 ) ( 138 ) ( 17,033 ) — — — —

Pension liability adjustment — — — — 26,340 — —

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Balance, at January 1, 2023 58,106 $ 5,811 $ 244,159 $ 278,639 $ ( 27,548 ) $ ( 138,775 ) $ ( 749 )

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SHARES COMMON STOCK ADDITIONAL

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(in thousands)

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

Net loss — — — ( 71,929 ) — — —

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

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

Net income — — — 55,234 — — —

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

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

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

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

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

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

Net income — — — 79,200 — — —

Net loss — — — ( 71,929 ) — — —

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

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

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

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

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

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

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Stock Options

The Company has a stock incentive plan under which a committee of independent directors is authorized to grant directors and key employees, including officers, restricted stock, incentive stock options, nonqualified stock options, stock appreciation rights, deferred shares, performance shares and performance units.

Stock options are exercisable for shares of Common Stock at a price not less than 100 % of the fair market value on the date of grant.

The options become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant.

The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant.

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

Stock Incentive Plans

The Company has stock incentive plans under which a committee of independent directors is authorized to grant directors and key employees, including officers, restricted stock, incentive stock options, nonqualified stock options, stock appreciation rights, deferred shares, performance shares and performance units.

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

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No award may be granted after the tenth anniversary of the effective date of the 2020 Omnibus Plan.

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Accounting standards require that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair market value of the award.

That expense will be recognized over the period that the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award.

The grant date fair value for options and similar instruments will be estimated using option pricing models.

Under accounting standards, the Company is required to select a valuation technique or option pricing model.

The Company uses the Black-Scholes model.

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

For certain restricted stock awards with a graded vesting schedule, the Company has elected to recognize compensation expense on a straight-line basis over the requisite service period for the entire award.

Stock Options

Stock options are exercisable for shares of Common Stock at a price not less than 100 % of the fair market value on the date of grant.

The options become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant.

The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant.

There was no stock option compensation expense during 2022, 2021 or 2020.

There were no stock options outstanding or exercisable as of January 1, 2023 or January 2, 2022.

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These awards (or a portion thereof) vest with respect to each recipient over a one to three year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date.

Additionally, these shares (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause.

Additionally, certain awards (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to awards of restricted stock was $ 5.3 million, $ 3.8 million and $ 1.3 million for 2022, 2021 and 2020, respectively.

These grants are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized.

The Company has reduced its expense for restricted stock forfeited during the period.

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

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

The Company has reduced its expense for any restricted stock forfeited during the period.

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

The following table summarizes restricted stock outstanding as of January 1, 2023, as well as activity during the year:

Restricted Shares Weighted Average

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The number of shares that may be issued in settlement of the performance shares to the award recipients may be greater (up to 200 %) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.

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

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

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

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The following table summarizes the performance shares outstanding as of January 1, 2023, as well as the activity during the year:

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Granted 366,900 13.02

Vested ( 200 ) 15.36

Forfeited or canceled ( 161,200 ) 16.62

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Compensation expense (benefit) related to the performance shares for 2022, 2021 and 2020 was $ 3.2 million, $ 1.7 million and $( 1.8 ) million, respectively.

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

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

Unrecognized compensation expense related to these performance shares was approximately $ 7.6 million as of January 1, 2023.

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The tax benefit recognized with respect to restricted stock and performance shares was $ 0.8 million, $ 0.7 million, and $ 0.6 million in 2022, 2021 and 2020, respectively.

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NOTE 15 – EARNINGS PER SHARE

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Income attributable to non-controlling interest is included in the computation of basic and diluted earnings per share, where applicable.

The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of common shares outstanding in our basic and diluted EPS calculations when the inclusion of these shares would be dilutive.

The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of common shares outstanding in the basic and diluted EPS calculations when the inclusion of these shares would be dilutive.

Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock.

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Shares for basic EPS 58,865 58,971 58,547

Dilutive effect of stock options — — 5

Shares for diluted EPS 58,865 58,971 58,547

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Diluted EPS $ 0.33 $ 0.94 $ ( 1.23 )

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NOTE 16 – RESTRUCTURING AND OTHER CHARGES

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Total restructuring, asset impairment and other charges $ 1,965 $ 3,621 $ ( 4,626 )

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

Workforce Reduction Other Exit Costs Asset Impairment

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

A summary of the restructuring reserve balance, recorded within accrued expenses in the consolidated balance sheets, for the 2021, 2019 and 2018 restructuring plans is presented below:

Workforce Reduction Retention Bonuses Other Exit Costs Asset Impairment and Other Related Charges

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

(in thousands)

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

Charged to other accounts — — — ( 49 ) — — ( 49 )

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

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

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

Deductions — ( 681 ) — — — — — ( 681 )

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

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

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Balance, at January 1, 2023 $ 277 $ — $ — $ 179 $ — $ — $ — $ 456

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

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

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

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

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

The 2018 restructuring plan was completed as of January 3, 2021.

Other Non-Cash Charges

On December 23, 2019, unrelated to the restructuring activity presented in the table above, the Company recorded other non-cash charges of approximately $ 5.0 million (comprised of $ 2.8 million attributable to the AMS reportable segment and $ 2.2 million attributable to the EAAA reportable segment) primarily related to adjusting the carrying value of certain insurance related assets.

These charges are recorded in restructuring, asset impairment and other charges in the 2019 consolidated statement of operations.

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Below is a discussion of the restructuring plan activities under the 2021, 2019 and 2018 restructuring plans.

2021 Restructuring Plan

On September 8, 2021, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations.

The plan involves a reduction of approximately 188 employees and the closure of the Company’s manufacturing facility in Thailand, anticipated to occur at the end of the first quarter of 2022.

As a result of this plan, the Company expects to incur pre-tax restructuring charges between the third quarter of 2021 and the fourth quarter of 2022 of approximately $ 4 million to $ 5 million.

The expected charges are comprised of severance expenses ($ 2.2 million), retention bonuses ($ 0.5 million), and asset impairment and other charges ($ 2.0 million).

The retention bonus costs of approximately $ 0.5 million will be recognized through the end of 2022 as earned over the requisite service periods.

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

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

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

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

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 manufacturing facility in Thailand at the end of the first quarter of 2022.

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Expected charges and cumulative charges incurred to date under the 2021 restructuring plan are as follows:

Workforce Reduction Retention Bonuses (2)

Asset Impairment and Other Related Charges Total

(in thousands)

Estimated expected charges (1)

$ 2,300 $ 500 $ 3,200 $ 6,000

Cumulative charges incurred to date (1)

2,258 493 3,121 5,872

(1) Charges are attributable to the EAAA reportable segment.

(2) The retention bonuses will be recognized through the first quarter of 2023 as earned over the requisite service periods.

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

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

The Company expects to complete the restructuring plan in the first quarter of 2023 and expects the plan to yield annualized savings of approximately $ 1.7 million.

A portion of the annualized savings was realized in the consolidated statements of operations in 2022, with the remaining portion of the annualized savings expected to be realized in 2023.

2019 Restructuring Plan

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

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

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

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

The 2019 restructuring plan was completed as of the end of the first quarter of 2022.

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

The Company expected the plan to yield annualized savings of approximately $ 6.0 million.

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

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2018 Restructuring Plan

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The charge was expected to result in future cash expenditures of $ 12.0 million, primarily for severance payments (approximately $ 10.8 million).

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

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In the third quarter of 2019, the Company recorded $ 0.7 million of restructuring charges related to additional lease exit costs in connection with the restructuring plan announced on December 29, 2018.

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In 2020, the Company further adjusted its previously recorded severance expenses and other exit costs and recognized a reduction in restructuring costs of $ 0.9 million.

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

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

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

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NOTE 17 – INCOME TAXES

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Total income tax expense (benefit) $ 22,357 $ 17,399 $ ( 7,491 )

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The Company’s effective tax rate was 53.3 %, 24.0 % and 9.4 % for fiscal years 2022, 2021 and 2020, respectively.

The following summary reconciles income taxes at the U.S.

federal statutory rate of 21 % applicable for all periods presented to the Company’s actual income tax expense:

federal statutory rate of 21 % applicable for all periods presented to the Company’s actual income tax expense (benefit):

2022 2021 2020

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Income tax expense (benefit) $ 22,357 $ 17,399 $ ( 7,491 )

On August 16, 2022, the Inflation Reduction Act of 2022 (“Inflation Reduction Act”) was signed into law, with tax provisions primarily focused on implementing a 15 % minimum tax on global adjusted financial statement income (“AFSI”) for corporations with average AFSI exceeding $ 1 billion over a three-year period, a 1 % excise tax on share repurchases and various climate and clean energy tax incentives.

While we continue to evaluate the impacts of the Inflation Reduction Act, it is not expected to have a material impact on the Company’s financial statements.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic and provides certain tax relief to businesses.

Tax provisions of the CARES Act include, among other things, the deferral of certain payroll taxes, relief for retaining employees, and certain income tax provisions for corporations.

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

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

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

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

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

Deferred income taxes for the years ended January 1, 2023 and January 2, 2022, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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

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Lease asset 22,811 24,856

Pensions 4,284 —

Foreign currency 600 458

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In addition, as of January 1, 2023, the Company has approximately $ 21.2 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

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

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As of January 1, 2023, and January 2, 2022, non-current deferred tax assets were reduced by approximately $ 2.8 million of unrecognized tax benefits.

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Historically, the Company has not provided for U.S.

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The Company provided for U.S.

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

income taxes and foreign withholding taxes on these earnings at January 1, 2023 and January 2, 2022.

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

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tax returns for the years 2012 through 2017.

Final assessments including the adjustments have not been issued.

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

2 unchanged sentences

to initiate a mutual agreement procedure (“MAP”) related to the double taxation arising from the HMRC adjustments.

Management believes it is more likely than not that the Company will obtain relief from double taxation through the MAP, and as such, does not anticipate these adjustments will result in a material change to its financial position.

The Company will continue to evaluate the progress of the MAP and will recognize all related adjustments when the recognition thresholds have been met.

In June of 2022, the Company was notified that the Competent Authorities had reached an agreement on the interest rate to be applied for the years 2012 through 2017.

The Company recognized the adjustments in 2022, based on the outcome of the MAP.

The recognition of the adjustments did not have a material impact on the Company’s effective tax rate or its financial position.

As of January 1, 2023, and January 2, 2022, the Company had $ 5.7 million and $ 8.2 million, respectively, of unrecognized tax benefits.

For the years ended January 1, 2023 and January 2, 2022, the Company recognized as income tax benefits $ 2.5 million and $ 2.7 million, respectively, of previously unrecognized tax benefits.

Of the $ 15.0 million income tax benefits recognized for the year ended January 3, 2021, $ 12.7 million related to a worthless stock loss claimed on the Company’s exit of its broadloom business (discontinued operations).

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

It is reasonably possible that approximately $ 0.9 million of unrecognized tax benefits may be recognized within the next 12 months.

If any of the $ 5.7 million of unrecognized tax benefits as of January 1, 2023 are recognized, there would be a favorable impact on the Company’s effective tax rate of approximately $ 5.0 million in future periods.

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The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.

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

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Balance at end of year $ 5,743 $ 8,220 $ 10,799

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NOTE 18 – COMMITMENTS AND CONTINGENCIES

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

The Company filed a motion for summary judgment on Mr.

Gould’s remaining claims.

On February 9, 2022, the U.S.

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

The motion for summary judgement remains pending with the Court.

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

On March 31, 2022, the Court entered an order granting the Company’s motion for summary judgment on all of Mr.

Gould’s remaining claims, leaving only the Company’s counterclaim against Mr.

Gould for breach of fiduciary duty pending in the District Court.

An attempted interlocutory appeal by Mr.

Gould of the summary judgment order was remanded by the 11th Circuit Court of Appeals back to the District Court as premature.

The Company believes Mr.

Gould’s lawsuit is without merit and intends to defend vigorously against it.

Putative Class Action Lawsuit

4 unchanged sentences

The Company paid a $ 5.0 million fine to resolve the matter, and was ordered to cease-and-desist from violating certain federal securities laws.

On November 12, 2020, the Company, the Company’s current and former president and chief executive officer, and its current chief financial officer were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York, Swanson v.

On November 12, 2020, the Company, the Company’s former president and chief executive officer, and its current chief financial officer and chairman were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York, Swanson v.

Interface, Inc.

(case :120-cv-05518).

The lawsuit is a federal securities law class action that alleges that the defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies.

The lawsuit is a federal securities law putative class action that alleges that the defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies.

The specific allegations relate to the subject matter of the concluded SEC investigation described above.

The complaint does not quantify the damages sought.

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

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

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

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

The Company filed a motion to dismiss the Amended Complaint, and that motion was denied by the Court on June 6, 2022.

The Company filed its Answer to the Amended Complaint on July 21, 2022.

Discovery in the case is proceeding.

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

The Company intends to defend itself vigorously against the action.

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NOTE 19 – EMPLOYEE BENEFIT PLANS

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The value of the insurance instruments was $ 16.6 million and $ 20.0 million as of January 1, 2023 and January 2, 2022, respectively.

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

The fair value of the mutual fund investments at January 1, 2023 and January 2, 2022 was $ 11.0 million and $ 15.6 million, respectively.

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

1 unchanged sentence

Multiemployer Plan

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

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

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

Active participants no longer accrue benefits after December 31, 2019, and instead participate in the Industry-Wide Pension Fund (the “IWPF”) multi-employer plan beginning in fiscal year 2020.

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

During 2022, 2021 and 2020, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 2.4 million, $ 2.6 million and $ 2.5 million, respectively.

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

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The Company uses a year-end measurement date for the plans, which is the closest practical date to the Company’s fiscal year end.

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As described above, on December 31, 2019, a plan amendment was executed to eliminate future service accruals in the Dutch defined benefit plan.

2 unchanged sentences

Participants in the Dutch Plan no longer accrue benefits under the plan after December 31, 2019 and participate in the IWPF beginning in fiscal year 2020.

Although the Dutch Plan is frozen to new participants, vested benefits prior to the curtailment will continue to be accounted for in accordance with applicable accounting standards for defined benefit plans.

Although the Dutch Plan is frozen to new participants, vested benefits will continue to be accounted for in accordance with applicable accounting standards for defined benefit plans.

The Dutch Plan is financed by assets held in an insurance contract.

The guarantee provision included in the insurance contract, that existed to fund any shortfall between the fair value of plan investments and the benefit obligation, expired on December 31, 2019.

The Company will fund the cost to guarantee vested benefits and this amount is recorded as an obligation on the Company’s consolidated balance sheet.

The curtailment of the Dutch Plan resulted in a decrease to the projected benefit obligation with an offsetting actuarial gain recognized in accumulated other comprehensive loss of approximately $ 2.4 million in fiscal year 2019.

The accumulated net actuarial loss for the Dutch Plan, after the impact of the curtailment, was $ 16.7 million at December 29, 2019.

This amount will be reclassified out of accumulated other comprehensive loss and increase pension expense over the life expectancy of vested participants when the actuarial loss exceeds the 10% corridor.

The curtailment also resulted in a $ 0.5 million reclassification of prior service cost from accumulated other comprehensive loss, which was recognized as a reduction of pension expense in fiscal year 2019.

The Company will fund the cost to guarantee vested benefits and this amount is recorded as an obligation on the Company’s consolidated balance sheets.

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As discussed above, the Company still has an obligation to pay vested benefits in the frozen Dutch Plan.

1 unchanged sentence

Pension expense for our three European defined benefit plans was $ 2.0 million, $ 2.5 million, and $ 2.5 million for the years 2022, 2021 and 2020, respectively.

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

As of January 2, 2022, for the European plans, the Company had a net liability recorded of $ 38.8 million, an amount equal to their underfunded status, and had recorded in accumulated other comprehensive loss an amount equal to $ 45.2 million (net of taxes of approximately $ 15.4 million) related to the future amounts to be recorded in net periodic benefit costs.

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

As of January 1, 2023, for the European plans, the Company had a net liability recorded of $ 8.0 million, an amount equal to their under-funded status, and had recorded in accumulated other comprehensive loss an amount equal to $ 23.7 million (net of taxes of approximately $ 4.3 million) related to the future amounts to be recorded in net periodic benefit costs.

In the next fiscal year, approximately $ 0.6 million will be reclassified from accumulated other comprehensive loss into net periodic benefit cost.

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The tables presented below set forth the funded status of the Company’s significant foreign defined benefit plans and required disclosures in accordance with applicable accounting standards:

5 unchanged sentences

Benefits and expenses paid ( 9,890 ) ( 11,339 )

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

Actuarial gain ( 96,556 ) ( 19,723 )

Currency translation adjustment ( 27,155 ) ( 12,747 )

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Accumulated benefit obligation $ 195,440 $ 324,408

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The above disclosure represents the aggregation of information related to the Company’s three defined benefit plans which cover many of its European employees.

The decrease in the projected benefit obligation of $ 129.0 million for 2022 compared to prior year was primarily due to the increase in the discount rates used to measure the obligation and the impact of foreign currency translation due to the weakening of the Euro and British Pound sterling against the U.S.

dollar in 2022.

As of January 1, 2023, one of these plans, which primarily covers certain employees in the United Kingdom (the “UK Plan”), had assets in excess of the accumulated benefit obligation.

2 unchanged sentences

The following table summarizes this information as of January 1, 2023 and January 2, 2022.

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End of Fiscal Year

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Amortization of prior service cost 117 114 106

Amortization of net actuarial (gains) losses 1,968 1,549 991

Curtailment gain — — ( 453 )

Amortization of net actuarial losses 1,201 1,968 1,549

Net periodic benefit cost $ 1,994 $ 2,544 $ 2,507

In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income in the consolidated statements of operations, while all other components of net periodic benefit costs are presented within other expense in the consolidated statements of operations.

In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income (loss) in the consolidated statements of operations, while all other components of net periodic benefit costs are presented within other expense, net, in the consolidated statements of operations.

During 2022, other comprehensive loss was impacted by a net gain of approximately $ 17.1 million (net of $ 10.0 million of tax), comprised of actuarial gain of approximately $ 16.4 million (net of $ 9.5 million of tax) and amortization of loss of $ 0.7 million (net of $ 0.5 million of tax).

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2022 2021 2020

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Expected return on plan assets 3.0 % 1.5 % 1.2 %

Rate of compensation — % — % 1.75 %

Weighted average assumptions used to determine benefit obligations:

Discount rate 4.4 % 1.6 % 1.0 %

Rate of compensation — % — % 1.75 %

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

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This type of insurance arrangement is common in The Netherlands, although not necessarily common in other jurisdictions.

After the Dutch Plan curtailment on December 31, 2019, as discussed above, any shortfall in plan assets to pay vested benefits will be funded by the Company.

After the Dutch Plan curtailment on December 31, 2019, any shortfall in plan assets to pay vested benefits will be funded by the Company.

The assets under the Dutch Plan, including any indexation benefit, are identified as level 3 assets under the fair value hierarchy.

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The indexation benefit for 2022 and 2021 is not significant.

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The Company’s actual weighted average asset allocations for 2022 and 2021, and the targeted asset allocation for 2023, of the foreign defined benefit plans by asset category, are as follows:

6 unchanged sentences

100 % 100 % 100 %

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The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value, as of January 1, 2023 and January 2, 2022.

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(in thousands)

Equity securities $ — $ — $ —

Debt and debt securities $ 19,614 $ 53,286 $ 26,778

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$ 44,335 $ 53,286 $ 89,864

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End of Fiscal Year 2021

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(in thousands)

Equity securities $ 9,113 $ — $ —

Debt and debt securities $ 45,516 $ 107,136 $ 27,176

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The fair values of these assets are calculated based on quoted market prices for similar assets.

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With the exception of the Dutch Plan assets as discussed above, the assets identified as level 3 above in 2022 and 2021 relate to insured annuities and direct lending assets held by the UK Plan.

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Purchases, sales and settlements, net 389 440

Assets transferred into level 3 732 3,934

Assets transferred to (from) level 3 ( 710 ) 732

Translation adjustment ( 8,973 ) ( 7,480 )

Balance of level 3 assets, end of year $ 89,864 $ 121,126

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

(1) Includes $ 22.2 million and $ 6.6 million for 2022 and 2021, respectively, of unrealized losses recognized during the period in other comprehensive income (loss) for assets held at year end.

During 2023, the Company expects to contribute $ 2.5 million to the plans.

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2028-2032 54,345

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Domestic Defined Benefit Plan

The Company maintains a domestic non-qualified salary continuation plan (“SCP”), which is designed to induce selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit programs.

The Company maintains a domestic nonqualified salary continuation plan (“SCP”), which is designed to induce selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit programs.

The SCP entitles participants to:

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

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The tables presented below set forth the required disclosures in accordance with applicable accounting standards, and amounts recognized in the consolidated financial statements related to the domestic SCP.

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Benefits paid ( 1,873 ) ( 1,965 )

Actuarial loss (gain) ( 2,522 ) 3,186

Actuarial gain ( 6,220 ) ( 2,522 )

Benefit obligation, end of year $ 22,731 $ 30,053

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The Company uses insurance instruments to help limit its exposure under the SCP.

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2022 2021 2020

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The changes in other comprehensive loss during 2022 related to the SCP as a result of plan activity was a net gain of approximately $ 4.9 million (net of $ 1.9 million of tax), primarily comprised of a net gain during the period of $ 4.5 million (net of $ 1.7 million of tax) and amortization of loss of $ 0.4 million (net of $ 0.2 million of tax).

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During 2022, the Company contributed $ 1.9 million in the form of direct benefit payments for its domestic SCP.

3 unchanged sentences

2028-2032 8,761

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NOTE 20 – SEGMENT INFORMATION

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Additionally, accounting standards require the utilization of a “management approach” to report the financial results of operating segments, which is based on information used by the CODM to assess performance and make operating and resource allocation decisions.

In the first quarter of 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas, and determined that it has two operating segments organized by geographical area – namely (a) Americas (“AMS”) and (b) Europe, Africa, Asia and Australia (collectively “EAAA”).

The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas.

Pursuant to the management approach discussed above, the Company’s CODM, our chief executive officer, evaluates performance at the AMS and EAAA operating segment levels and makes operating and resource allocation decisions based on segment adjusted operating income or loss (“AOI”), which includes allocations of corporate selling, general and administrative expenses.

AOI excludes nora purchase accounting amortization, goodwill and intangible asset impairment charges, changes in equity award forfeiture accounting, restructuring charges, asset impairment, severance and other charges, and an SEC settlement fine.

In 2021, the Company determined that it has two operating segments organized by geographical area – namely (a) Americas (“AMS”) and (b) Europe, Africa, Asia and Australia (collectively “EAAA”).

The AMS operating segment includes the United States, Canada and Latin America geographic areas.

Pursuant to the management approach discussed above, the Company’s CODM, our chief executive officer, evaluates performance at the AMS and EAAA operating segment levels and makes operating and resource allocation decisions based on segment adjusted operating income (“AOI”), which includes allocations of corporate selling, general and administrative expenses.

AOI excludes nora purchase accounting amortization;

Thailand plant closure inventory write-down;

Cyber Event impact;

goodwill and intangible asset impairment charges;

changes in equity award forfeiture accounting;

restructuring, asset impairment, severance and other charges;

and an SEC settlement fine.

Intersegment revenues for 2022, 2021 and 2020 were $ 75.5 million, $ 78.1 million and $ 71.5 million, respectively.

1 unchanged sentence

The Company has determined that it has two reportable segments – AMS and EAAA, as each operating segment meets the quantitative thresholds defined in the accounting guidance.

Segment information below for fiscal years 2020 and 2019 have been restated to reflect our new reportable segment structure.

Segment information for 2022, 2021 and 2020 is presented in the tables below – segment information for fiscal year 2020 has been recast to reflect the new reportable segment structure:

2022 2021 2020

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Total depreciation and amortization $ 40,337 $ 46,345 $ 45,920

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

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Interest expense 29,929 29,681 29,244

Other expense 2,483 10,889 3,431

Other expense, net 3,552 2,483 10,889

Income (loss) before income tax expense $ 41,917 $ 72,633 $ ( 79,420 )

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2022 2021 2020

3 unchanged sentences

Purchase accounting amortization — 5,038 — 5,636 — 5,457

Thailand plant closure inventory write-down — 2,530 — — — —

Cyber Event impact 3,878 1,215 — — — —

Goodwill and intangible asset impairment 3,838 32,342 — — 2,695 118,563

7 unchanged sentences

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

Other than the United States in 2021, 2020 and 2019, and Germany in 2020, no one country represented more than 10 % of the Company’s net sales during the past three years.

Revenue and long-lived assets related to operations in the United States and other countries are as follows:

Sales to Unaffiliated Customers (1)

Net sales and long-lived assets for the United States and other significant countries (that individually represent 10 % or greater of consolidated totals for each year presented) are as follows:

Net Sales to Unaffiliated Customers (1)

2022 2021 2020 (2)

1 unchanged sentence

United States $ 694,299 $ 596,844 $ 545,183

Germany 115,712 115,402 117,418

Other foreign countries 603,620 603,554 558,079

6 unchanged sentences

Netherlands 42,422 47,476

Australia 29,924 33,536

Other foreign countries 15,238 20,481

1 unchanged sentence

(1) Revenue attributed to geographic areas is based on the location of the customer.

(2) Net sales in Germany were $ 115.4 million in 2020, which exceeded 10 % of consolidated net sales for that year.

Net sales in Germany did not exceed 10 % of consolidated net sales for all other periods presented.

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

1 unchanged sentence

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

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NOTE 21 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS

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

Amounts reclassified out of accumulated other comprehensive loss (“AOCI”), before tax, to the consolidated statements of operations for the fiscal years 2022, 2021 and 2020, are reflected in the table below:

Statement of Operations Location 2022 2021 2020

(in thousands)

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

Interest rate swap contracts gain (loss) (1)

Interest rate swap contracts loss (1)

Interest expense $ ( 2,809 ) $ ( 4,861 ) $ ( 7,287 )

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

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

Other expense, net ( 1,875 ) ( 2,825 ) ( 2,213 )

Total loss reclassified from AOCI $ ( 4,684 ) $ ( 7,686 ) $ ( 9,500 )

1 unchanged sentence

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

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Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Interface, Inc.

(the “Company”) as of January 2, 2022 and January 3, 2021, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 2, 2022, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2022 and January 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2022 , in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of January 1, 2023, and January 2, 2022, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 1, 2023, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company on January 1, 2023, and January 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of January 1, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2023 expressed an unqualified opinion thereon.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

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Goodwill Impairment Assessment

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Goodwill is tested for impairment annually as of the measurement date or more frequently if events or changes in circumstances indicate the asset might be impaired.

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

The goodwill impairment test consists of a comparison of the fair value of a reporting unit with its carrying value, including the goodwill allocated to the reporting units.

During the fourth quarter of fiscal 2022, the Company performed the annual impairment test for all reporting units, which resulted in the Company recording a goodwill impairment charge for the Europe, Middle East and Africa (“EMEA”) reporting unit in the amount of $29.4 million.

The goodwill impairment test consists of a comparison of the fair value of a reporting unit with its carrying value, including the goodwill allocated to the reporting unit.

If the carrying value of a reporting unit exceeds its fair value, the Company will recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit.

The Company estimates the fair value of its reporting units using a weighting of fair values derived from an income approach and a market approach.

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We identified the estimate of the fair value of the EMEA reporting unit during the goodwill impairment assessment as of the annual measurement date, as a critical audit matter.

We identified the estimate of the fair value of the EMEA reporting unit used in the goodwill impairment assessment as of the annual measurement date, as a critical audit matter.

The principal considerations for our determination are:

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

(i) this reporting unit had relatively low excess fair value over carrying value;

therefore, the fair value estimates were particularly sensitive to changes in significant assumptions such as projected revenue, gross margin, earnings, and the discount rate included in the income approach, (ii) the greater than usual volatility and uncertainty underlying the market data used in the market approach includes assumptions utilized by management for which changes to these assumptions can have a significant impact on the fair value of the reporting unit, and (iii) auditing management’s valuation methods and assumptions utilized in estimating the fair value of the EMEA reporting unit involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address this matter, including the involvement of individuals with specialized skill or knowledge.

The primary procedures we performed to address this critical audit matter included:

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

• Testing the design and operating effectiveness of controls related to management’s forecasting process, including controls over management’s review of the data and significant assumptions utilized to determine fair value of the EMEA reporting unit, including projected revenue, gross margin, earnings, and the discount rate, all referred to as significant assumptions, included in the income approach.

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

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

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

(i) evaluating the methodologies used by management to determine the fair value of the EMEA reporting unit including the weighting of the income and market approaches (ii) testing the mathematical accuracy of the Company’s calculations, (iii) evaluating the reasonableness of significant assumptions used in the income approach including the discount rate, (iv) assessing the reasonableness of certain market data used in the market approach, and (v) evaluating the reasonableness of the market capitalization reconciliation.

We are uncertain as to the year we began serving consecutively as the auditor of the Company's financial statements;

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March 1, 2023

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Report of Independent Registered Public Accounting Firm

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Opinion on Internal Control over Financial Reporting

We have audited Interface, Inc.’s (the “Company’s”) internal control over financial reporting as of January 2, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited Interface, Inc.

(the “Company’s”) internal control over financial reporting as of January 1, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of January 2, 2022 and January 3, 2021, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 2, 2022, and the related notes and schedule and our report dated March 2, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of January 1, 2023 and January 2, 2022, the related consolidated statements of operations, comprehensive income (loss), and cash flows for each of the three years in the period ended January 1, 2023, and the related notes and schedules and our report dated March 1, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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March 1, 2023

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data