What changed in this filing

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Item 1A. Risk Factors

2024-02-28 compared with 2023-03-01 · 32 added, 71 removed, 208 unchanged (33% of the section changed)

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

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

In prior years, some of our competitors were adding manufacturing capacity into the industry throughout the globe which increased the amount of supply in the market.

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

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

In situations such as these, we may be required by accounting rules to recognize a loss for the write-down of the value of our inventory due to its age or obsolescence.

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

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

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

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

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

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

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

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

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

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These changes can be disruptive.

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

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

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

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

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

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

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

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

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

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

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

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

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

Some of these systems are owned and operated by us, and some are owned or operated by third parties pursuant to leases, licenses or other contracts with those third parties.

We rely on these systems to, among other things:

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• manage payroll and human resources information.

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

The IT systems we use may be disrupted or fail for a number of reasons, including:

• natural disasters, like fires;

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

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

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

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

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

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

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

The investigation of the Cyber Event by our forensic experts was completed during fiscal year 2023.

In fiscal year 2022, in connection with the Cyber Event, our revenues were adversely affected by approximately $8 million due to lost sales.

Additionally, we incurred Cyber Event costs of approximately $5 million in fiscal year 2022 primarily due to idle plant costs, direct labor costs during the period our manufacturing facilities were idle and third-party remediation costs.

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

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

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

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

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

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

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

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Risk Factors Related to COVID-19

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

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

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

our ability to operate;

our ability to keep employees safe from public health risks;

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

our near term and long term ability to stay in compliance with debt covenants under our Syndicated Credit Facility and Senior Notes;

our ability to refinance our existing indebtedness;

and our ability to gain financing in the capital markets.

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

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

the potential shut down of certain locations;

decreased employee availability;

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

increased overtime and temporary labor costs;

potential border closures;

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

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

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

These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing from the capital markets.

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

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

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

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

In 2021, we established and publicly disclosed targets and other commitments related to certain sustainability matters, including a goal to reduce our CO2 emissions across our Company and supply chain by 2030.

We also set a goal to become a carbon negative enterprise by 2040.

If we are unable to meet these targets or commitments on our projected timelines or at all, or if they are perceived negatively, including the perception that they are not sufficiently robust or, conversely, are too costly, our reputation as well as our relationships with investors, customers and other stakeholders could be harmed, which could in turn adversely impact our business, results of operations and the trading price of our common stock.

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

Sales of our principal products are related to the renovation and construction of commercial and institutional buildings.

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

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

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

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

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The effects of cyclicality and other factors on the new construction segment of the market have also tended in the past to be more pronounced than the effects on the renovation segment.

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

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These effects may recur and could be more pronounced if global economic conditions do not improve or are weakened by negative cycles or other factors.

Health crisis events, such as epidemics or pandemics, have adversely impacted, and may continue to impact, the economy and disrupt our operations and supply chains, which may have an adverse effect on our results of operations.

Health crisis events, including epidemics or pandemics, such as COVID-19, have impacted areas where we operate and sell our products and could have additional impacts on economic growth, supply chains, and foreign currency exchange rates.

Recently, prolonged government imposed COVID-19 restrictions in China and the slow post-COVID recovery in the country adversely impacted our sales in China during fiscal years 2022 and 2023.

A public health emergency in the future could have a material adverse effect on our ability to operate, our results of operations, financial condition, and demand for our products.

International Risk Factors

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

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

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

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

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

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The conflict between Russia and Ukraine and the Israel-Hamas war could adversely affect our business, results of operations and financial position.

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

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

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

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

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

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

While we permanently closed our operations in Russia in the third quarter of 2022, the effects of the conflict between Russia and Ukraine on us as well as the global economy cannot be predicted.

The conflict between Russia and Ukraine and the Israel-Hamas war are ongoing and the duration of the conflict and war are uncertain.

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

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

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

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

Other potential consequences of the ongoing conflict and war include or may include government sanctions, embargoes, unstable energy markets, regional instability, geopolitical shifts, potential retaliatory action by the governments involved in the conflict and war against companies or other countries, and increased tensions between the involved governments and the United States or other countries in which we operate.

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

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exit leads to economic difficulties in Europe.

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Risk Factors Related to our Indebtedness

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

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

As of December 31, 2023, we had approximately $421.7 million of outstanding debt, and we had $298.4 million of undrawn borrowing capacity under our Syndicated Credit Facility.

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

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

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

Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.

Specifically, the FCA stopped publishing one week and two-month U.S.

dollar LIBOR rates as of December 31, 2021, and the remaining U.S.

dollar LIBOR rates will cease to be published on June 30, 2023.

The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) in April 2018 as an alternative for LIBOR.

SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S.

Treasury securities.

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

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

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

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

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

denominated loans.

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

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

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Please refer to Item 3, “Legal Proceedings,” within this Report for additional information related to litigation and claims.

UNRESOLVED STAFF COMMENTS

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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 1A. Risk Factors