INTERFACE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par values) OCTOBER 1, 2023 JANUARY 1, 2023 (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 119,633 $ 97,564 Accounts receivable, net 143,884 182,807 Inventories, net 289,320 306,327 Prepaid expenses and other current assets 33,003 30,339 Total current assets 585,840 617,037 Property, plant and equipment, net 282,401 297,976 Operating lease right-of-use assets 75,604 81,644 Deferred tax asset 16,263 17,767 Goodwill and intangibles, net 156,487 162,195 Other assets 85,046 89,884 Total assets $ 1,201,641 $ 1,266,503 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 75,602 $ 78,264 Accrued expenses 115,266 120,138 Current portion of operating lease liabilities 10,829 11,857 Current portion of long-term debt 8,492 10,211 Total current liabilities 210,189 220,470 Long-term debt 435,899 510,003 Operating lease liabilities 67,554 72,305 Deferred income taxes 37,052 38,662 Other long-term liabilities 63,383 63,526 Total liabilities 814,077 904,966 Commitments and contingencies Shareholders’ equity Preferred stock, par value $ 1.00 per share; 5,000 shares authorized; none issued or outstanding at October 1, 2023 and January 1, 2023 — — Common stock, par value $ 0.10 per share; 120,000 shares authorized; 58,107 and 58,106 shares issued and outstanding at October 1, 2023 and January 1, 2023, respectively 5,811 5,811 Additional paid-in capital 249,979 244,159 Retained earnings 301,859 278,639 Accumulated other comprehensive loss – foreign currency translation ( 141,660 ) ( 138,775 ) Accumulated other comprehensive loss – cash flow hedge — ( 749 ) Accumulated other comprehensive loss – pension liability ( 28,425 ) ( 27,548 ) Total shareholders’ equity 387,564 361,537 Total liabilities and shareholders’ equity $ 1,201,641 $ 1,266,503 See accompanying notes to consolidated condensed financial statements. 3 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 1, 2023 OCTOBER 2, 2022 OCTOBER 1, 2023 OCTOBER 2, 2022 Net sales $ 311,006 $ 327,757 $ 936,380 $ 962,364 Cost of sales 200,748 218,972 618,463 630,074 Gross profit 110,258 108,785 317,917 332,290 Selling, general and administrative expenses 79,273 80,848 251,049 240,711 Restructuring, asset impairment, other (gains) and charges — ( 105 ) ( 2,502 ) 1,592 Operating income 30,985 28,042 69,370 89,987 Interest expense 8,163 7,747 24,986 21,787 Other expense, net 6,702 124 7,674 1,688 Income before income tax expense 16,120 20,171 36,710 66,512 Income tax expense 6,241 6,106 11,748 22,336 Net income $ 9,879 $ 14,065 $ 24,962 $ 44,176 Earnings per share – basic $ 0.17 $ 0.24 $ 0.43 $ 0.75 Earnings per share – diluted $ 0.17 $ 0.24 $ 0.43 $ 0.75 Common shares outstanding – basic 58,107 58,681 58,087 59,099 Common shares outstanding – diluted 58,342 58,681 58,233 59,099 See accompanying notes to consolidated condensed financial statements. 4 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) THREE MONTHS ENDED NINE MONTHS ENDED OCTOBER 1, 2023 OCTOBER 2, 2022 OCTOBER 1, 2023 OCTOBER 2, 2022 Net income $ 9,879 $ 14,065 $ 24,962 $ 44,176 Other comprehensive loss, after tax: Foreign currency translation adjustment ( 9,176 ) ( 36,800 ) ( 2,885 ) ( 86,654 ) Reclassification from accumulated other comprehensive loss – discontinued cash flow hedge 150 492 749 1,673 Pension liability adjustment 202 3,393 ( 877 ) 8,774 Other comprehensive loss ( 8,824 ) ( 32,915 ) ( 3,013 ) ( 76,207 ) Comprehensive income (loss) $ 1,055 $ ( 18,850 ) $ 21,949 $ ( 32,031 ) See accompanying notes to consolidated condensed financial statements. 5 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) NINE MONTHS ENDED OCTOBER 1, 2023 OCTOBER 2, 2022 OPERATING ACTIVITIES: Net income $ 24,962 $ 44,176 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 30,591 30,661 Share-based compensation expense 7,334 6,679 Gain on disposal of property, plant and equipment, net ( 2,531 ) — Loss on foreign subsidiary liquidation 6,221 — Deferred income taxes and other ( 671 ) 13,616 Amortization of acquired intangible assets 3,886 3,817 Working capital changes: Accounts receivable 37,396 ( 8,860 ) Inventories 14,135 ( 71,487 ) Prepaid expenses and other current assets ( 2,842 ) 2,321 Accounts payable and accrued expenses ( 4,264 ) ( 6,040 ) Cash provided by operating activities 114,217 14,883 INVESTING ACTIVITIES: Capital expenditures ( 17,238 ) ( 13,314 ) Proceeds from sale of property, plant and equipment 6,593 — Cash used in investing activities ( 10,645 ) ( 13,314 ) FINANCING ACTIVITIES: Repayments of long-term debt ( 149,738 ) ( 151,662 ) Borrowing of long-term debt 74,000 159,363 Tax withholding payments for share-based compensation ( 1,514 ) ( 398 ) Repurchase of common stock — ( 14,451 ) Dividends paid ( 1,742 ) ( 1,773 ) Finance lease payments ( 1,853 ) ( 1,535 ) Cash used in financing activities ( 80,847 ) ( 10,456 ) Net cash provided by (used in) operating, investing and financing activities 22,725 ( 8,887 ) Effect of exchange rate changes on cash ( 656 ) ( 8,916 ) CASH AND CASH EQUIVALENTS: Net increase (decrease) 22,069 ( 17,803 ) Balance, beginning of period 97,564 97,252 Balance, end of period $ 119,633 $ 79,449 See accompanying notes to consolidated condensed financial statements. 6 Table of Contents INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation References in this Quarterly Report on Form 10-Q to “Interface,” “the Company,” “we,” “our,” “ours” and “us” refer to Interface, Inc. and its subsidiaries or any of them, unless the context requires otherwise. As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January 1, 2023, as filed with the Commission. The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature unless otherwise disclosed. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The January 1, 2023, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”). The nine-month periods ended October 1, 2023 and October 2, 2022, both include 39 weeks. The three-month periods ended October 1, 2023 and October 2, 2022, both include 13 weeks. Risks and Uncertainties Global economic challenges, including the impacts of the Russia-Ukraine and Israel-Hamas wars, inflation and supply chain disruptions could cause economic uncertainty and volatility. The Company considered these impacts and subsequent general uncertainties and volatility in the global economy on the assumptions and estimates used herein. In connection with the Cyber Event discussed below, 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. These uncertainties could result in a future material adverse effect to the amounts reported within the Company’s consolidated condensed financial statements if actual results differ from these estimates. Cybersecurity Event On November 20, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems (the “Cyber Event”). In response to this Cyber Event, we notified law enforcement and took steps to supplement existing security monitoring, including scanning and protective measures. The investigation of the Cyber Event was substantially completed early in the third quarter of 2023. Recently Adopted Accounting Pronouncements In July 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-03, “ Presentation of Financial Statements (Topic 205), Income Statement — Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), Compensation — Stock Compensation (Topic 718) .” This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Accounting Bulletin (“SAB”) number 120. The ASU provides clarifying guidance related to employee and non-employee share-based payment accounting, including guidance related to spring-loaded awards. ASU 2023-03 is effective upon issuance. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements. In June 2022, the FASB issued 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 standard on April 2, 2023. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. 7 Table of Contents NOTE 2 – REVENUE RECOGNITION The Company generates revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material and from the installation of carpet and other flooring-related material. A summary of these revenue streams, as a percentage of net sales, for the three and nine months ended October 1, 2023 and October 2, 2022 is as follows: Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Revenue from the sale of flooring material 98 % 96 % 98 % 97 % Revenue from installation of flooring material 2 % 4 % 2 % 3 % Disaggregation of Revenue For the three and nine months ended October 1, 2023 and October 2, 2022, revenue from the Company’s customers is broken down by geography as follows: Three Months Ended Nine Months Ended Geography October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Americas 57.3 % 59.4 % 58.6 % 57.9 % Europe 30.3 % 28.2 % 30.0 % 29.3 % Asia-Pacific 12.4 % 12.4 % 11.4 % 12.8 % Revenue from the Company’s customers in the Americas corresponds to the AMS reportable segment, and the EAAA reportable segment includes revenue from the Europe and Asia-Pacific geographies. See Note 11 entitled “Segment Information” for additional information. 8 Table of Contents NOTE 3 – INVENTORIES Inventories are summarized as follows: October 1, 2023 January 1, 2023 (in thousands) Finished goods $ 207,885 $ 209,478 Work-in-process 19,103 15,463 Raw materials 62,332 81,386 Inventories, net $ 289,320 $ 306,327 9 Table of Contents NOTE 4 – EARNINGS PER SHARE The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings. 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 shares outstanding for basic EPS as these awards are considered participating securities. Any unvested stock awards considered non-participating securities are included in 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. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following table shows the computation of basic and diluted EPS: Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands, except per share data) Numerator: Net income $ 9,879 $ 14,065 $ 24,962 $ 44,176 Less: distributed and undistributed earnings available to participating securities ( 117 ) ( 246 ) ( 327 ) ( 716 ) Distributed and undistributed earnings available to common shareholders $ 9,762 $ 13,819 $ 24,635 $ 43,460 Denominator: Weighted average shares outstanding 57,420 57,656 57,326 58,139 Participating securities 687 1,025 761 960 Shares for basic EPS 58,107 58,681 58,087 59,099 Dilutive effect of non-participating securities 235 — 146 — Shares for diluted EPS 58,342 58,681 58,233 59,099 Basic EPS $ 0.17 $ 0.24 $ 0.43 $ 0.75 Diluted EPS $ 0.17 $ 0.24 $ 0.43 $ 0.75 For both the three and nine months ended October 1, 2023, 855,785 non-participating securities that could potentially dilute basic EPS in the future, consisting of restricted share units and performance shares, were excluded from the computation of diluted EPS as these securities would have been antidilutive for the respective periods. 10 Table of Contents NOTE 5 – LONG-TERM DEBT Long-term debt consisted of the following: October 1, 2023 January 1, 2023 Outstanding Principal Interest Rate (1) Outstanding Principal Interest Rate (1) (in thousands) (in thousands) Syndicated Credit Facility: Revolving loan borrowings $ 5,895 7.33 % $ 24,250 5.29 % Term loan borrowings 143,361 6.63 % 202,082 5.84 % Total borrowings under Syndicated Credit Facility 149,256 6.66 % 226,332 5.78 % 5.50% Senior Notes due 2028 300,000 5.50 % 300,000 5.50 % Total debt 449,256 526,332 Less: Unamortized debt issuance costs ( 4,865 ) ( 6,118 ) Total debt, net 444,391 520,214 Less: Current portion of long-term debt ( 8,492 ) ( 10,211 ) Total long-term debt, net $ 435,899 $ 510,003 (1) Represents the weighted average rate of interest for borrowings under the Syndicated Credit Facility and the stated rate of interest for the 5.50 % Senior Notes due 2028, without the effect of debt issuance costs. Syndicated Credit Facility The Company’s Syndicated Credit Facility (the “Facility”) provides to the Company U.S. denominated and multicurrency term loans and provides to the Company and certain of its subsidiaries a multicurrency revolving credit facility. Interest on base rate loans is charged at varying rates computed by applying a margin depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on SOFR-based and alternative currency loans and fees for letters of credit are charged at varying rates computed by applying a margin over the applicable SOFR rate or alternative currency rate, 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 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. As of both October 1, 2023 and January 1, 2023, the Company had $ 1.6 million in letters of credit outstanding under the Facility. As of both October 1, 2023 and January 1, 2023, the carrying value of the Company’s borrowings under the Facility approximated its fair value as the Facility bears interest rates that are similar to existing market rates. The fair value of borrowings under the Facility is estimated using observable market rates and is considered Level 2 within the fair value hierarchy. Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter. 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. Senior Notes due 2028 The 5.50 % Senior Notes due 2028 (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. 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 Facility. 11 Table of Contents As of October 1, 2023, the estimated fair value of the Senior Notes was $ 258.8 million, compared with a carrying value recorded in the Company’s consolidated condensed balance sheet of $ 296.3 million ($ 300.0 million excluding $ 3.7 million of unamortized debt issuance costs). The fair value of the Senior Notes is derived using quoted prices for similar instruments and is considered Level 2 within the fair value hierarchy. 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. 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. As these fees are expensed over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are expensed. As of October 1, 2023 and January 1, 2023, the unamortized debt issuance costs recorded as a reduction of long-term debt were $ 4.9 million and $ 6.1 million, respectively. Debt issuance costs related to the issuance of revolving debt, which include underwriting, legal and other direct costs, net of accumulated amortization, were $ 1.5 million and $ 1.8 million as of October 1, 2023 and January 1, 2023, respectively. These amounts are included in other assets in the Company’s consolidated condensed balance sheets. The Company amortizes these costs over the life of the related debt. 12 Table of Contents NOTE 6 – DERIVATIVE INSTRUMENTS Interest Rate Risk Management From time to time, the Company enters into interest rate swap transactions to fix the variable interest rate on a portion of its term loan borrowing in order to manage a portion of its exposure to interest rate fluctuations. The Company’s objective and strategy with respect to these interest rate swaps is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability to cash flows relating to interest payments on a portion of its outstanding debt. Cash Flow Interest Rate Swaps In the fourth quarter of 2020, the Company terminated its designated interest rate swap transactions with a total notional value of $ 250 million. Hedge accounting was also discontinued at that time. Losses recorded in accumulated other comprehensive loss for these terminated interest rate swaps are reclassified and recorded in the consolidated condensed statements of operations to the extent it is probable that a portion of the original forecasted transactions related to the portion of the hedged debt repaid will not occur by the end of the originally specified time period. See Note 14 entitled “Items Reclassified From Accumulated Other Comprehensive Loss” for additional information. As of October 1, 2023, all amounts related to the terminated interest rate swaps have been recognized in the consolidated condensed statements of operations, and there was no remaining balance in accumulated other comprehensive loss associated with the terminated interest rate swaps. As of January 1, 2023, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps to be amortized to earnings over the remaining term of the interest rate swaps prior to termination, before tax, was $ 1.0 million. 13 Table of Contents NOTE 7 – SHAREHOLDERS’ EQUITY The following tables depict the activity in the accounts which make up shareholders’ equity for the nine months ended October 1, 2023 and October 2, 2022: SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands, except per share data) Balance, at January 1, 2023 58,106 $ 5,811 $ 244,159 $ 278,639 $ ( 27,548 ) $ ( 138,775 ) $ ( 749 ) Net loss — — — ( 714 ) — — — Issuances of stock related to performance shares 79 8 ( 8 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 580 ) — — — Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 132 ) ( 14 ) 1,850 — — — — Pension liability adjustment — — — — ( 279 ) — — Foreign currency translation adjustment — — — — — 4,930 — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 299 Balance, at April 2, 2023 58,053 $ 5,805 $ 246,001 $ 277,345 $ ( 27,827 ) $ ( 133,845 ) $ ( 450 ) Net income — — — 15,797 — — — Issuances of stock related to restricted share units and performance shares 5 1 ( 1 ) — — — — Restricted stock issuances 102 10 697 — — — — Unrecognized compensation expense related to restricted stock awards — — ( 708 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 581 ) — — — Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 48 ) ( 5 ) 1,808 — — — — Pension liability adjustment — — — — ( 800 ) — — Foreign currency translation adjustment — — — — — 1,361 — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 300 Balance, at July 2, 2023 58,112 $ 5,811 $ 247,797 $ 292,561 $ ( 28,627 ) $ ( 132,484 ) $ ( 150 ) Net income — — — 9,879 — — — Cash dividends declared, $ 0.01 per common share — — — ( 581 ) — — — Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 5 ) — 2,182 — — — — Pension liability adjustment — — — — 202 — — Foreign currency translation adjustment — — — — — ( 9,176 ) — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 150 Balance, at October 1, 2023 58,107 $ 5,811 $ 249,979 $ 301,859 $ ( 28,425 ) $ ( 141,660 ) $ — 14 Table of Contents SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS PENSION LIABILITY FOREIGN CURRENCY TRANSLATION ADJUSTMENT CASH FLOW HEDGE (in thousands, except per share data) Balance, at January 2, 2022 59,055 $ 5,905 $ 253,110 $ 261,434 $ ( 53,888 ) $ ( 100,441 ) $ ( 2,722 ) Net income — — — 13,293 — — — Restricted stock issuances 303 30 3,966 — — — — Unrecognized compensation expense related to restricted stock awards — — ( 3,996 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 592 ) — — — Compensation expense related to share-based plans, net of shares received for tax withholdings ( 30 ) ( 2 ) 1,787 — — — — Pension liability adjustment — — — — 1,539 — — Foreign currency translation adjustment — — — — — ( 13,184 ) — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 641 Balance, at April 3, 2022 59,328 $ 5,933 $ 254,867 $ 274,135 $ ( 52,349 ) $ ( 113,625 ) $ ( 2,081 ) Net income — — — 16,818 — — — Restricted stock issuances 198 20 2,533 — — — — Unrecognized compensation expense related to restricted stock awards — — ( 2,553 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 595 ) — — — Compensation expense related to share-based plans, net of forfeitures ( 14 ) ( 1 ) 2,145 — — — — Share repurchases ( 415 ) ( 42 ) ( 5,540 ) — — — — Pension liability adjustment — — — — 3,842 — — Foreign currency translation adjustment — — — — — ( 36,670 ) — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 540 Balance, at July 3, 2022 59,097 $ 5,910 $ 251,452 $ 290,358 $ ( 48,507 ) $ ( 150,295 ) $ ( 1,541 ) Net income — — — 14,065 — — — Cash dividends declared, $ 0.01 per common share — — — ( 586 ) — — — Compensation expense related to share-based plans, net of forfeitures ( 16 ) ( 2 ) 2,353 — — — — Share repurchases ( 711 ) ( 71 ) ( 8,798 ) — — — — Pension liability adjustment — — — — 3,393 — — Foreign currency translation adjustment — — — — — ( 36,800 ) — Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 492 Balance, at October 2, 2022 58,370 $ 5,837 $ 245,007 $ 303,837 $ ( 45,114 ) $ ( 187,095 ) $ ( 1,049 ) 15 Table of Contents Repurchase of Common Stock 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. No shares of common stock were repurchased during the nine months ended October 1, 2023. During the nine months ended October 2, 2022, the Company repurchased 1,126,176 shares of common stock at a weighted average price of $ 12.83 per share pursuant to this program. Restricted Stock Awards During the nine months ended October 1, 2023, the Company granted restricted stock awards for 102,300 shares of common stock. Awards of restricted stock (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, 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. 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. Compensation expense related to restricted stock grants was $ 3.4 million and $ 4.0 million for the nine months ended October 1, 2023 and October 2, 2022, respectively. The Company has reduced its expense for any restricted stock forfeited during the period. The following table summarizes restricted stock outstanding as of October 1, 2023, as well as activity during the nine months then ended: Restricted Shares Weighted Average Grant Date Fair Value Outstanding at January 1, 2023 1,006,400 $ 13.91 Granted 102,300 6.92 Vested ( 405,100 ) 14.43 Forfeited or canceled ( 16,800 ) 13.60 Outstanding at October 1, 2023 686,800 $ 12.56 As of October 1, 2023, the unrecognized total compensation cost related to unvested restricted stock was $ 2.8 million. That cost is expected to be recognized by the first quarter of 2025. Restricted Share Unit Awards During the nine months ended October 1, 2023, the Company granted awards for 596,200 restricted share units to certain employees pursuant to the Company’s 2020 Omnibus Stock Incentive Plan. Each restricted share unit represents one share of the Company’s common stock to be issued to the award recipient once the vesting criteria have been satisfied. Awards of restricted share units have a graded vesting schedule over a two to three-year period from the date of grant, provided the individual remains in the employment or service of the Company as of each vesting date. Additionally, certain awards (or a portion thereof) could vest earlier in the event of a change in control of the Company, upon involuntary termination without cause, or upon retirement provided certain eligibility criteria are met. The Company recognizes expense related to restricted share unit grants based on the grant date fair value of the units awarded, as determined by the market price of the Company’s common stock at date of grant. The expense is captured in selling, general and administrative expenses in the consolidated condensed statements of operations, which is consistent with the classification of expense for other share-based awards. The Company has elected to recognize compensation expense on a straight-line basis over the requisite service period for the entire award for awards with a graded vesting schedule. Compensation expense related to the restricted share units was $ 1.5 million for the nine months ended October 1, 2023. The Company reduces its expense for any restricted share units forfeited during the period. Grants of restricted share units are made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized. 16 Table of Contents The following table summarizes restricted share units outstanding as of October 1, 2023, as well as activity during the nine months then ended: Restricted Share Units Weighted Average Grant Date Fair Value Outstanding at January 1, 2023 — $ — Granted 596,200 10.36 Vested ( 2,100 ) 10.80 Forfeited or canceled ( 10,700 ) 10.80 Outstanding at October 1, 2023 583,400 $ 10.35 As of October 1, 2023, the unrecognized total compensation cost related to unvested restricted share units was $ 4.6 million. That cost is expected to be recognized by the end of 2026. Performance Share Awards During the nine months ended October 1, 2023, the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years , subject to (among other things) the employee’s continued employment through the last date of the performance period, and will be settled in shares of our common stock or in cash at the Company’s election. 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 Company evaluates the probability of achieving the performance-based goals as of the end of each reporting period and adjusts compensation expense based on this assessment. The following table summarizes the performance shares outstanding as of October 1, 2023, as well as the activity during the nine months then ended: Performance Shares Weighted Average Grant Date Fair Value Outstanding at January 1, 2023 923,600 $ 13.91 Granted 467,500 10.79 Vested ( 82,300 ) 15.11 Forfeited or canceled ( 193,800 ) 14.79 Outstanding at October 1, 2023 1,115,000 $ 12.36 Compensation expense related to the performance shares was $ 2.4 million and $ 2.7 million for the nine months ended October 1, 2023 and October 2, 2022, respectively. The Company has reduced its expense for any performance shares forfeited during the period. Unrecognized compensation expense related to these performance shares was approximately $ 7.3 million as of October 1, 2023. Depending on the performance of the Company, any compensation expense related to these outstanding performance shares will be recognized by the first quarter of 2026. The tax benefit recognized with respect to restricted stock, restricted share units and performance shares was approximately $ 0.7 million for the nine months ended October 1, 2023. 17 Table of Contents NOTE 8 – LEASES General The Company has operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. The Company’s leases have terms ranging from 1 to 20 years, some of which may include options to extend the lease term for up to 5 years, and certain leases may include an option to terminate the lease. Our lease accounting may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option. The Company records a right-of-use asset and lease liability for leases extending beyond one year for operating and finance leases once a contract that contains a lease is executed and we have the right to control the use of the leased asset. The right-of-use asset is measured as the present value of the lease obligation. The discount rate used to calculate the present value of the lease liability was the Company’s incremental borrowing rate for the applicable geographical region. As of October 1, 2023, there were no significant leases that had not commenced. The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to the Company’s leases as of October 1, 2023 and January 1, 2023: October 1, 2023 January 1, 2023 Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases (in thousands) Operating lease right-of-use assets $ 75,604 $ 81,644 Current portion of operating lease liabilities $ 10,829 $ 11,857 Operating lease liabilities 67,554 72,305 Total operating lease liabilities $ 78,383 $ 84,162 Property, plant and equipment, net $ 6,406 $ 5,845 Accrued expenses $ 2,256 $ 2,101 Other long-term liabilities 4,534 4,138 Total finance lease liabilities $ 6,790 $ 6,239 Lease Costs Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Finance lease cost: Amortization of right-of-use assets $ 696 $ 581 $ 2,056 $ 1,636 Interest on lease liabilities 79 45 224 115 Operating lease cost 4,740 4,743 14,141 14,310 Short-term lease cost 187 204 934 642 Variable lease cost 583 614 1,924 2,012 Total lease cost $ 6,285 $ 6,187 $ 19,279 $ 18,715 18 Table of Contents Other Supplemental Information Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 60 $ 35 $ 167 $ 88 Operating cash flows from operating leases 4,130 4,406 12,771 13,854 Financing cash flows from finance leases 545 525 1,853 1,535 Right-of-use assets obtained in exchange for new finance lease liabilities 1,414 182 2,450 2,525 Right-of-use assets obtained (adjusted) in exchange for new (remeasured) operating lease liabilities 236 ( 734 ) 4,199 6,089 Lease Term and Discount Rate The table below presents the weighted average remaining lease terms and discount rates for finance and operating leases as of October 1, 2023 and January 1, 2023: October 1, 2023 January 1, 2023 Weighted-average remaining lease term – finance leases (in years) 3.76 3.82 Weighted-average remaining lease term – operating leases (in years) 8.77 9.29 Weighted-average discount rate – finance leases 5.16 % 3.79 % Weighted-average discount rate – operating leases 5.99 % 5.89 % Maturity Analysis A maturity analysis of lease payments under non-cancellable leases is presented as follows: Fiscal Year Operating Leases Finance Leases (in thousands) 2023 (excluding the nine months ended October 1, 2023) $ 2,733 $ 569 2024 14,999 2,518 2025 13,069 1,733 2026 12,767 1,202 2027 10,246 868 Thereafter 48,882 662 Total future minimum lease payments (undiscounted) 102,696 7,552 Less: Present value discount ( 24,313 ) ( 762 ) Total lease liability $ 78,383 $ 6,790 19 Table of Contents NOTE 9 – EMPLOYEE BENEFIT PLANS During the three and nine months ended October 1, 2023, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.7 million and $ 2.0 million, respectively. During the three and nine months ended October 2, 2022, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.5 million and $ 1.8 million, respectively. The following tables provide the components of net periodic benefit cost for the three and nine months ended October 1, 2023 and October 2, 2022: Three Months Ended Nine Months Ended Defined Benefit Retirement Plans (Europe) October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Interest cost $ 1,791 $ 801 $ 5,304 $ 2,574 Expected return on plan assets ( 2,030 ) ( 924 ) ( 6,009 ) ( 2,973 ) Amortization of prior service cost 30 27 89 89 Amortization of net actuarial losses 229 240 680 771 Net periodic benefit cost $ 20 $ 144 $ 64 $ 461 Three Months Ended Nine Months Ended Salary Continuation Plan October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Interest cost $ 284 $ 193 $ 851 $ 579 Amortization of net actuarial losses 49 139 146 418 Net periodic benefit cost $ 333 $ 332 $ 997 $ 997 Three Months Ended Nine Months Ended nora Defined Benefit Plan October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Service cost $ 116 $ 200 $ 345 $ 636 Interest cost 275 98 822 313 Amortization of net actuarial (gains) losses ( 110 ) 44 ( 330 ) 142 Net periodic benefit cost $ 281 $ 342 $ 837 $ 1,091 In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income in the consolidated condensed statements of operations, while all other components of net periodic benefit costs are presented within other expense, net, in the consolidated condensed statements of operations. 20 Table of Contents NOTE 10 – GOODWILL AND INTANGIBLE ASSETS The ending balance and the change in the carrying amount of goodwill for the nine months ended October 1, 2023, are as follows: Goodwill (1) (in thousands) Balance, at January 1, 2023 $ 102,417 Foreign currency translation (2) ( 1,193 ) Balance, at October 1, 2023 $ 101,224 (1) The goodwill balance is allocated entirely to the AMS reportable segment. All goodwill allocated to the EAAA reportable segment was previously written off as a result of impairment charges. (2) A portion of the goodwill balance is comprised of goodwill denominated in foreign currency attributable to the nora acquisition. The net carrying value of intangible assets other than goodwill was $ 55.3 million and $ 59.8 million at October 1, 2023 and January 1, 2023, respectively. 21 Table of Contents NOTE 11 – SEGMENT INFORMATION The Company determines that an operating segment exists if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has operating results that are regularly reviewed by the chief operating decision maker (“CODM”) and (iii) has discrete financial information. Additionally, accounting standards require the utilization of a “management approach” to report the financial results of operating segments, which is based on information used by the CODM to assess performance and make operating and resource allocation decisions. 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, and restructuring, asset impairment, severance, and other, net. Intersegment revenues for the three and nine months ended October 1, 2023, were $ 25.0 million and $ 72.3 million, respectively, and intersegment revenues for the three and nine months ended October 2, 2022, were $ 19.7 million and $ 56.4 million, respectively. Intersegment revenues are eliminated from net sales presented below since these amounts are not included in the information provided to the CODM. The Company has determined that it has two reportable segments – AMS and EAAA, as each operating segment meets the quantitative thresholds defined in the accounting guidance. Segment information for the three and nine months ended October 1, 2023 and October 2, 2022, is presented in the following table: Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Net sales AMS $ 178,194 $ 194,449 $ 548,716 $ 557,768 EAAA 132,812 133,308 387,664 404,596 Total net sales $ 311,006 $ 327,757 $ 936,380 $ 962,364 Segment AOI AMS $ 23,318 $ 24,975 $ 58,621 $ 74,502 EAAA 9,049 6,273 16,805 25,908 Depreciation and amortization AMS $ 4,640 $ 4,344 $ 13,457 $ 12,585 EAAA 5,805 5,481 17,134 18,076 Total depreciation and amortization $ 10,445 $ 9,825 $ 30,591 $ 30,661 22 Table of Contents A reconciliation of the Company’s total operating segment assets to the corresponding consolidated amounts follows: October 1, 2023 January 1, 2023 (in thousands) Assets AMS $ 587,424 $ 588,110 EAAA 637,825 652,921 Total segment assets 1,225,249 1,241,031 Corporate assets 101,224 110,495 Eliminations ( 124,832 ) ( 85,023 ) Total reported assets $ 1,201,641 $ 1,266,503 Reconciliations of operating income to income before income tax expense and segment AOI are presented as follows: Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) AMS operating income $ 23,530 $ 24,955 $ 56,997 $ 74,618 EAAA operating income 7,455 3,087 12,373 15,369 Consolidated operating income 30,985 28,042 69,370 89,987 Interest expense 8,163 7,747 24,986 21,787 Other expense, net 6,702 124 7,674 1,688 Income before income tax expense $ 16,120 $ 20,171 $ 36,710 $ 66,512 Three Months Ended October 1, 2023 Three Months Ended October 2, 2022 AMS EAAA AMS EAAA (in thousands) Operating income $ 23,530 $ 7,455 $ 24,955 $ 3,087 Purchase accounting amortization — 1,302 — 1,204 Thailand plant closure inventory write-down — — — 477 Cyber Event impact 62 42 — — Restructuring, asset impairment, severance, and other, net ( 274 ) 250 20 1,505 AOI $ 23,318 $ 9,049 $ 24,975 $ 6,273 Nine Months Ended October 1, 2023 Nine Months Ended October 2, 2022 AMS EAAA AMS EAAA (in thousands) Operating income $ 56,997 $ 12,373 $ 74,618 $ 15,369 Purchase accounting amortization — 3,886 — 3,817 Thailand plant closure inventory write-down — — — 2,530 Cyber Event impact 554 415 — — Restructuring, asset impairment, severance, and other, net 1,070 131 ( 116 ) 4,192 AOI $ 58,621 $ 16,805 $ 74,502 $ 25,908 23 Table of Contents NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest amounted to $ 17.6 million and $ 13.7 million for the nine months ended October 1, 2023 and October 2, 2022, respectively. Income tax payments, net of refunds, amounted to $ 17.6 million and $ 11.5 million for the nine months ended October 1, 2023 and October 2, 2022, respectively. See Note 8 entitled “Leases” for supplemental disclosures related to finance and operating leases. 24 Table of Contents NOTE 13 – INCOME TAXES The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate (“AETR”) and records any changes affecting the estimated AETR in the interim period in which the change occurs, including discrete tax items. During the nine months ended October 1, 2023, the Company recorded a total income tax provision of $ 11.7 million on pre-tax income of $ 36.7 million resulting in an effective tax rate of 32.0 %, as compared to a total income tax provision of $ 22.3 million on pre-tax income of $ 66.5 million resulting in an effective tax rate of 33.6 % during the nine months ended October 2, 2022. The decrease in the effective tax rate for the period ended October 1, 2023, as compared to the period ended October 2, 2022, was primarily due to favorable changes related to the cash surrender value of Company-owned life insurance, non-recurring non-deductible charges related to the closure of the Company’s manufacturing facility in Thailand incurred in the first nine months of 2022, and favorable changes related to foreign exchange movements. This decrease was partially offset by a non-recurring favorable change to unrecognized tax benefits in the period ended October 2, 2022, non-deductible charges related to the substantial liquidation of subsidiaries in Brazil and Russia in the period ended October 1, 2023, and an increase in the valuation allowance on interest carryforwards. In the first nine months of 2023, the Company decreased its liability for unrecognized tax benefits by $ 0.3 million. As of October 1, 2023, the Company had accrued approximately $ 5.4 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of October 1, 2023, reflects a reduction for $ 2.8 million of these unrecognized tax benefits. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, it is reasonably possible that approximately $ 0.5 million of unrecognized tax benefits may be recognized within the next 12 months, of which $ 0.5 million would result in a favorable impact to the effective tax rate. 25 Table of Contents NOTE 14 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS Amounts reclassified out of accumulated other comprehensive loss (“AOCI”), before tax, to the consolidated condensed statements of operations during the three and nine months ended October 1, 2023 and October 2, 2022, are reflected in the tables below: Three Months Ended Statement of Operations Location October 1, 2023 October 2, 2022 (in thousands) Loss on foreign subsidiary liquidation (1) Other expense, net $ ( 6,221 ) $ — Interest rate swap contracts loss Interest expense ( 196 ) ( 645 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense, net ( 198 ) ( 450 ) Total loss reclassified from AOCI $ ( 6,615 ) $ ( 1,095 ) Nine Months Ended Statement of Operations Location October 1, 2023 October 2, 2022 (in thousands) Loss on foreign subsidiary liquidation (1) Other expense, net $ ( 6,221 ) $ — Interest rate swap contracts loss Interest expense ( 982 ) ( 2,416 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense, net ( 585 ) ( 1,420 ) Total loss reclassified from AOCI $ ( 7,788 ) $ ( 3,836 ) (1) The Company’s foreign subsidiaries in Russia and Brazil were substantially liquidated during the three months ended October 1, 2023, and the cumulative foreign currency translation losses associated with these entities were recognized in the consolidated condensed statements of operations. The tax impact of the cumulative foreign currency translation reclassification is approximately $ 1.1 million. 26 Table of Contents NOTE 15 – RESTRUCTURING AND OTHER Restructuring, asset impairment, other (gains) and charges were as follows: Three Months Ended Nine Months Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 (in thousands) Restructuring, asset impairment, other (gains) and charges (1) $ — $ ( 105 ) $ ( 2,502 ) $ 1,592 (1) Restructuring, asset impairment, other (gains) and charges are attributable to the EAAA reportable segment. 2021 Restructuring Plan On September 8, 2021, the Company committed to a new restructuring plan that continued to focus on efforts to improve efficiencies and decrease costs across its worldwide operations. The plan involved 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. Expected charges and cumulative charges incurred to date under the 2021 restructuring plan are as follows: Workforce Reduction Retention Bonuses Asset Impairment and Other Related Charges Total (in thousands) Estimated expected charges (1) $ 2,281 $ 474 $ 3,295 $ 6,050 Cumulative charges incurred to date (1) 2,281 474 3,295 6,050 (1) Charges are attributable to the EAAA reportable segment. A summary of the restructuring reserve balance, recorded within accrued expenses in the consolidated condensed balance sheets, for the 2021 restructuring plan is presented below: Workforce Reduction Retention Bonuses Asset Impairment and Other Related Charges Total (in thousands) Balance, at January 1, 2023 $ 277 $ 179 $ — $ 456 Charged to expenses 23 ( 19 ) 174 178 Deductions ( 300 ) ( 160 ) — ( 460 ) Charged to other accounts — — ( 174 ) ( 174 ) Balance, at October 1, 2023 $ — $ — $ — $ — The Company recognized a gain of $ 2.7 million on the sale of the Thailand facility during the second quarter of 2023. See Note 16 entitled “Assets Disposed” for additional information. In addition, during the nine months ended October 2, 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 condensed statements of operations. The Company completed the 2021 restructuring plan in the second quarter of 2023, following the sale of the Thailand manufacturing facility, as described in Note 16 entitled “Assets Disposed,” and expects the plan to yield annualized savings of approximately $ 1.7 million. A portion of the annualized savings was realized on the consolidated condensed statements of operations in fiscal year 2022, with the remaining portion of the annualized savings expected to be realized in fiscal year 2023. 27 Table of Contents NOTE 16 – ASSETS DISPOSED On September 8, 2021, the Company announced a restructuring plan that involved the closure of its manufacturing facility in Thailand and committed to a plan to sell the Thailand facility in connection with this restructuring plan. See Note 15 entitled “Restructuring and Other” for additional information. During the second quarter of 2023, the Company completed the sale of the Thailand manufacturing facility for a selling price of $ 6.6 million and recognized a gain of $ 2.7 million, which is recorded in restructuring, asset impairment, other (gains) and charges in the consolidated condensed statements of operations and is attributable to the EAAA reportable segment. The Company determined that the Thailand facility sale did not meet the criteria for classification as discontinued operations. 28 Table of Contents NOTE 17 – COMMITMENTS AND CONTINGENCIES From time to time, we are a party to legal proceedings, whether arising in the ordinary course of business or otherwise. See disclosure under the headings “Lawsuit by Former CEO in Connection with Termination” and “Putative Class Action Lawsuit” set forth in Note 18 to the consolidated financial statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended January 1, 2023 . In the lawsuit by the former CEO, Mr. Gould filed a motion for reconsideration of the Court’s grant of summary judgment in favor of the Company on Mr. Gould’s breach of contract claim. On July 31, 2023, the Court denied that motion for reconsideration. Also on July 31, 2023, the Company filed a motion to dismiss without prejudice its counterclaim against Mr. Gould for breach of fiduciary duty. On August 2, 2023, the Court granted that motion to dismiss, resulting in a final judgment in the trial court. The court’s award of summary judgment in favor of the Company on Mr. Gould’s breach of contract claim has been appealed by Mr. Gould to the U.S. Court of Appeals for the 11th Circuit. The Company believes Mr. Gould’s lawsuit and the appeal therefrom is without merit and intends to defend vigorously against it. In the putative class action, the Court preliminarily approved a settlement of the lawsuit for $ 7.5 million, and the Company’s insurers funded the settlement amount into escrow. As a result, in the second quarter of 2023, the Company reversed the $ 7.5 million asset and liability that were previously recorded in the first quarter of 2023. Putative class member proofs of claims were due by September 13, 2023, and in a hearing on October 19, 2023, the Court approved the final settlement of the action. 29 Table of Contents