MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
−Removed: Our revenues are derived from sales of floorcovering products, primarily modular carpet, luxury vinyl tile (“LVT”) and rubber flooring products.
+Added: Our revenues are derived from sales of floorcovering products, primarily modular carpet, resilient flooring, including luxury vinyl tile (“LVT”), rubber flooring products, and installation services and accessories.
Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space.
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As a result, macroeconomic factors such as employment rates, office vacancy rates, work from home policies, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.
−Removed: During fiscal year 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas, and determined that it has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”).
−Removed: The AMS operating segment continues to include the United States, Canada and Latin America geographic areas.
+Added: The Company has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”).
+Added: The AMS operating segment includes the United States, Canada and Latin America geographic areas.
See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information .
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We focus our marketing and sales efforts on both corporate office and non-corporate office market segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share.
−Removed: More than half of our consolidated net sales were in non-corporate office markets in fiscal year 2022 and fiscal year 2021, primarily in education, healthcare, retail, public buildings, hospitality and residential/living market segments.
+Added: More than half of our consolidated net sales were in non-corporate office markets in fiscal years 2023, 2022, and 2021, primarily in education, healthcare, public buildings, residential/living, retail, and hospitality market segments.
See Item 1, entitled “Business,” included in this Annual Report on Form 10-K for additional information regarding our mix of sales in corporate office verses non-corporate office market segments for the last three fiscal years by reportable segment.
Executive Summary
+Added: During 2023, we had consolidated net sales of $1,261.5 million, down 2.8% compared to $1,297.9 million in 2022, primarily due to decreased customer demand – particularly in the retail market segment.
+Added: Consolidated operating income for 2023 was $104.5 million compared to consolidated operating income of $75.4 million in 2022, primarily due to a non-recurring goodwill and intangible asset impairment charge of $36.2 million recognized in 2022.
+Added: Consolidated net income for 2023 was $44.5 million, or $0.76 per diluted share, compared to consolidated net income of $19.6 million, or $0.33 per diluted share, in 2022.
During 2022, we had consolidated net sales of $1,297.9 million, up 8.1% compared to $1,200.4 million in 2021, primarily due to higher sales in the corporate office, education and retail market segments.
−Removed: Consolidated operating income for 2022 was $75.4 million compared to consolidated operating income of $104.8 million in 2021 primarily due to continuing inflationary pressures on raw materials and freight costs in the current year and a $36.2 million goodwill and intangible asset impairment charge in 2022.
−Removed: Consolidated net income for 2022 was $19.6 million or $0.33 per share, compared to consolidated net income of $55.2 million, or $0.94 per share, in 2021.
−Removed: During 2021, we had consolidated net sales of $1,200.4 million, up 8.8% compared to $1,103.3 million in 2020, primarily due to the rebound in economic activity in certain countries following the impacts of COVID-19.
−Removed: Consolidated operating income for 2021 was $104.8 million compared to consolidated operating loss of $39.3 million in 2020 primarily due to higher sales in 2021 and a $121.3 million impairment of goodwill and certain intangible assets in 2020 .
−Removed: Fiscal year 2021 also included $3.9 million of restructuring charges in connection with the planned closure of our Thailand manufacturing operations which occurred in 2022.
−Removed: Consolidated net income for 2021 was $55.2 million or $0.94 per share, compared to consolidated net loss of $71.9 million, or $1.23 per share, in 2020.
+Added: Consolidated operating income for 2022 was $75.4 million compared to consolidated operating income of $104.8 million in 2021, primarily due to higher inflationary pressures on raw materials and freight costs and a $36.2 million goodwill and intangible asset impairment charge in 2022.
+Added: Consolidated net income for 2022 was $19.6 million, or $0.33 per diluted share, compared to consolidated net income of $55.2 million, or $0.94 per diluted share, in 2021.
A detailed discussion of our 2023 and 2022 consolidated and segment performance appears below under “Analysis of Results of Operations”.
Cybersecurity Event
−Removed: As previously disclosed in our current report on Form 8-K filed with the SEC on November 23, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems on November 20, 2022.
+Added: As previously disclosed, 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.
−Removed: We took steps to supplement existing security monitoring, including scanning and protective measures, and notified law enforcement.
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+Added: We also took steps to supplement existing security monitoring, including scanning and protective measures, and notified law enforcement.
The Company substantially resumed its operations within two weeks following the occurrence of the Cyber Event.
−Removed: However, the investigation of the Cyber Event by our forensic experts is still ongoing.
−Removed: We estimate the Cyber Event adversely affected our fiscal 2022 revenues by approximately $8 million in lost sales.
+Added: The investigation of the Cyber Event by our forensic experts was completed during 2023.
+Added: We incurred approximately $1.1 million of costs in 2023 in connection with the investigation of the Cyber Event, which were recorded in selling, general and administrative expenses in the consolidated statements of operations.
+Added: In 2022, we estimated that the Cyber Event adversely affected our fiscal year 2022 revenues by approximately $8 million in lost sales.
We incurred approximately $5 million of costs related to the Cyber Event in 2022 for idle plant costs, direct labor costs during the period our manufacturing facilities were idle and third-party remediation costs.
−Removed: Approximately $4.8 million of the Cyber Event costs were included in cost of sales in the consolidated statement of operations and approximately $0.3 million in selling, general and administrative expenses.
+Added: Approximately $4.8 million of the Cyber Event costs in 2022 were included in cost of sales in the consolidated statements of operations and approximately $0.3 million were included in selling, general and administrative expenses.
We have insurance and anticipate that a portion of our financial losses related to the Cyber Event will ultimately be covered by insurance.
−Removed: We expect to incur ongoing costs to enhance data security and plan to take further steps to prevent unauthorized access to, or manipulation of, our systems and data.
−Removed: Impact of the COVID-19 Pandemic
−Removed: 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.
−Removed: The COVID-19 pandemic has had material adverse effects on our business, results of operations, and financial condition.
−Removed: The duration of the pandemic will ultimately determine the extent to which our operations are impacted.
−Removed: During fiscal year 2022, the COVID-19 pandemic continued to have less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.1% compared to 2021.
−Removed: However, continuing government imposed COVID-19 lockdowns and restrictions in parts of China adversely impacted sales in China by approximately 13% compared with the prior year.
−Removed: 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.
−Removed: Management believes it is reasonably likely these impacts will continue to affect our future operations and results to some degree, particularly during the first half of 2023.
−Removed: During fiscal year 2021, the COVID-19 pandemic had less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.8% compared to fiscal year 2020.
−Removed: Government stimulus programs, increased COVID-19 vaccination rates, and fewer COVID-19 related restrictions in some places contributed to a rebound in economic activity in certain countries in 2021 driving higher revenues globally compared to fiscal year 2020.
−Removed: Our global supply chain and manufacturing operations, however, experienced increased adverse impacts and disruptions in 2021 from COVID-19.
−Removed: These impacts included raw material shortages, raw material cost increases, higher freight costs, shipping delays, and labor shortages – particularly in the United States.
−Removed: These impacts to our supply chain and manufacturing operations increased our costs, decreased our ability to achieve manufacturing targets, increased lead times to our customers, and adversely affected our gross profit margin as a percentage of net sales.
−Removed: During fiscal year 2020, the COVID-19 pandemic resulted in 17.9% lower consolidated net sales compared to fiscal year 2019.
−Removed: We temporarily suspended production in certain manufacturing facilities in 2020 due to government lockdowns, shelter in place orders and reduced demand.
−Removed: Our sales mix shifted towards more non-corporate office market segments as the COVID-19 pandemic reduced corporate spending, which impacted sales in the corporate office market.
−Removed: During 2020, the Company recorded $12.9 million of voluntary and involuntary severance costs, which were included in selling, general and administrative expenses in the consolidated statements of operations.
−Removed: Also in fiscal year 2020, government grants and payroll protection programs were available in various countries globally to provide assistance to companies impacted by the pandemic.
−Removed: The CARES Act enacted in the United States (see Note 17 entitled “ Income Taxes ” included in Item 8 of this Annual Report on Form 10-K for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”) provided benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferral of payroll tax payments.
−Removed: The NOW Program provided eligible companies with reimbursement of labor costs as an incentive to retain employees and continue paying them in accordance with the Company’s customary compensation practices.
−Removed: During fiscal year 2020, the Company qualified for benefits under several payroll protection programs 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, as the Company believes it is probable that the benefits received will not be repaid.
−Removed: During the first quarter of 2020, as a result of changes in macroeconomic conditions related to the COVID-19 pandemic, we recognized a charge of $121.3 million for the impairment of goodwill and certain intangible assets.
−Removed: See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.
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+Added: We expect to incur ongoing costs for enhanced data security against unauthorized access to, or manipulation of, our systems and data.
+Added: Impact of Macroeconomic Conditions
+Added: During fiscal year 2023, the continued disruption in economic markets due to ongoing inflation, increases in interest rates, the Russia-Ukraine war, the onset of the Israel-Hamas war, a fairly stabilized but still challenging supply chain environment, a slow post COVID recovery in China and slow market conditions in the rest of Asia, and significant financial pressures in the commercial office market globally, all posed challenges for us.
+Added: Management believes it is reasonably likely that these challenges will continue to affect our future operations and demand for our products to some degree during fiscal year 2024.
+Added: W e are also anticipating decreases in the cost of raw materials and freight, offset by continued unfavorable manufacturing fixed cost absorption during fiscal year 2024.
+Added: To mitigate these impacts, we plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.
+Added: During fiscal year 2022, the COVID-19 pandemic had less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.1% compared to 2021.
+Added: Government imposed COVID-19 lockdowns and restrictions in parts of China in 2022 adversely impacted sales in China by approximately 13% compared to 2021.
+Added: Global supply chain challenges and inflationary pressures in 2022 resulted in higher raw material costs, higher freight costs and shipping delays, which increased our operating costs and adversely impacted our gross profit margin in 2022.
Analysis of Results of Operations
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Because we have substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions.
+Added: In 2023, the strengthening of the Euro against the U.S.
+Added: dollar had a positive impact on our net sales, partially offset by the weakening of the Australian dollar, Chinese Renminbi, and Canadian dollar.
+Added: Currency fluctuations had no material impact to operating income in 2023.
In 2022, the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S.
2 unchanged sentences
dollar had a positive impact on our net sales and operating income.
−Removed: In 2020, the strengthening of the Euro, British Pound sterling, and Chinese Renminbi against the U.S.
−Removed: dollar had a positive impact on our net sales and operating loss.
The following table presents the amounts (in U.S.
dollars) by which the exchange rates for translating Euros, British Pounds sterling, Australian dollars, Chinese Renminbi and Canadian dollars into U.S.
−Removed: dollars have affected our consolidated net sales and operating income or loss during the past three years:
+Added: dollars have affected our consolidated net sales and operating income during the past three years:
2023 2022 2021
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Impact of changes in foreign currency on consolidated net sales $ 1.4 $ (58.8) $ 23.9
−Removed: Impact of changes in foreign currency on consolidated operating income (loss) (8.3) 3.2 0.9
+Added: Impact of changes in foreign currency on consolidated operating income
+Added: (0.6) (8.3) 3.2
The following table presents, as a percentage of net sales, certain items included in our consolidated statements of operations during the past three years:
4 unchanged sentences
Selling, general and administrative expenses 26.9 25.0 27.0
−Removed: Restructuring, asset impairment and other charges 0.2 0.3 (0.4)
+Added: Restructuring, asset impairment, other (gains) and charges
+Added: (0.2) 0.2 0.3
Goodwill and intangible asset impairment charge — 2.8 —
−Removed: Operating income (loss) 5.7 8.7 (3.6)
+Added: Operating income
Interest/Other expense, net 3.2 2.6 2.7
−Removed: Income (loss) before income tax expense 3.1 6.0 (7.2)
−Removed: Income tax expense (benefit) 1.7 1.4 (0.7)
−Removed: Net income (loss) 1.4 % 4.6 % (6.5) %
+Added: Income before income tax expense
+Added: Income tax expense
+Added: 3.6 % 1.4 % 4.6 %
Consolidated Net Sales
Below we provide information regarding our consolidated net sales and analyze those results for each of the last three fiscal years.
−Removed: Fiscal year 2022 included 52 weeks, fiscal year 2021 included 52 weeks, and fiscal year 2020 included 53 weeks.
+Added: Fiscal years 2023, 2022, and 2021 each included 52 weeks.
Fiscal Year Percentage Change
−Removed: 2022 2021 2020 2022 compared with 2021 2021 compared with 2020
+Added: 2023 2022 2021 2023 compared with 2022
+Added: 2022 compared with 2021
(in thousands)
Consolidated net sales $ 1,261,498 $ 1,297,919 $ 1,200,398 (2.8) % 8.1 %
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Consolidated net sales for 2023 compared with 2022
+Added: For 2023, our consolidated net sales decreased $36.4 million (2.8%) compared to 2022, comprised of lower sales volumes (approximately 7.9%) partially offset by higher prices (approximately 5.1%).
+Added: Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated net sales comparison of approximately $1.4 million, meaning that if currency levels had remained constant year-over-year, our 2023 net sales would have been lower by this amount.
+Added: On a market segment basis, the sales decrease was most significant in the retail and healthcare market segments partially offset by increases in education and residential living market segments.
+Added: See the segment results discussion below for additional information on market segments.
+Added: Consolidated net sales for 2022 compared with 2021
For 2022, our consolidated net sales increased $97.5 million (8.1%) compared to 2021, comprised of higher sales volumes (approximately 5.4%) and higher prices (approximately 2.7%, including the impact of currency fluctuations).
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See the segment results discussion below for additional information on market segments.
−Removed: Consolidated net sales for 2021 compared with 2020
−Removed: For 2021, our consolidated net sales increased $97.1 million (8.8%) compared to 2020, comprised of higher sales volumes (approximately 5.1%) and higher prices (approximately 3.7%).
−Removed: Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated net sales comparison of approximately $23.9 million, meaning that if currency levels had remained constant year over year, our 2021 sales would have been lower by this amount.
−Removed: On a market segment basis, the sales increase was most significant in non-corporate office market segments including retail, education and healthcare.
−Removed: See the segment results discussion below for additional information on market segments.
Consolidated Cost and Expenses
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Fiscal Year Percentage Change
−Removed: 2022 2021 2020 2022 compared with 2021 2021 compared with 2020
+Added: 2023 2022 2021 2023 compared with 2022
+Added: 2022 compared with 2021
(in thousands)
2 unchanged sentences
Consolidated Cost of Sales
+Added: For 2023, our consolidated cost of sales decreased $39.8 million (4.6%) compared to 2022, primarily due to lower sales and lower freight costs (approximately $19 million) due to stabilizing supply chain conditions.
+Added: Currency translation had no material impact on consolidated cost of sales compared to 2022.
+Added: As a percentage of net sales, our consolidated cost of sales decreased to 65.0% in 2023 versus 66.3% in 2022.
+Added: Management believes it is reasonably likely that lower inflation and decreases in the cost of raw materials, partially offset by unfavorable manufacturing fixed cost absorption, will continue to some degree in 2024, particularly in the first half of 2024.
+Added: Management expects to continue managing the fixed cost under-absorption through higher sales prices, product mix and plant productivity initiatives.
For 2022, our consolidated cost of sales increased $92.5 million (12.1%) compared to 2021, primarily due to higher sales and continuing inflationary pressures on raw materials and freight costs.
The increase in consolidated cost of sales was also impacted by higher energy costs (which were up approximately 28%) in our EAAA segment primarily due to shortages in the supply of natural gas in connection with the ongoing conflict between Russia and Ukraine.
−Removed: Currency translation had a positive impact on consolidated cost of sales of approximately $37.2 million (4.8%) compared to last year.
−Removed: The increase in cost of sales in 2022 also includes $4.8 million of costs related to the Cyber Event, as discussed above.
+Added: Currency translation had a positive impact on consolidated cost of sales of approximately $37.2 million (4.8%) compared to 2021.
+Added: The increase in cost of sales in 2022 also included $4.8 million of costs related to the Cyber Event, as discussed above.
As a percentage of net sales, our consolidated cost of sales increased to 66.3% in 2022 versus 64.0% in 2021, due to higher raw materials, freight and energy costs, as discussed above.
−Removed: Management believes it is reasonably likely the inflationary pressures experienced in 2022 will continue to some degree in 2023, particularly in the first half of 2023, and expects to continue managing these pressures through higher sales prices, product mix and plant productivity initiatives.
−Removed: For 2021, our consolidated cost of sales increased $75.0 million (10.8%) compared to 2020, primarily due to higher net sales and the continued adverse impacts of COVID-19.
−Removed: Currency translation had a $16.2 million (2.3%) negative impact on the year-over-year comparison.
−Removed: In 2021, the impact of COVID-19 continued to challenge our global supply chain which contributed to higher cost of sales and lower gross profit margins — particularly in the United States.
−Removed: As a percentage of net sales, our consolidated cost of sales increased to 64.0% in 2021 versus 62.8% in 2020, primarily due to inflationary pressures on raw materials, freight and labor costs driving an approximately 3.4% increase in cost of sales as a percentage of net sales compared to the prior year.
−Removed: The increase in our consolidated cost of sales as a percentage of net sales was partially offset by productivity efficiencies during the year.
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Consolidated Gross Profit
For 2023, consolidated gross profit, as a percentage of net sales, was 35.0% compared to 33.7% for 2022.
−Removed: The decrease was primarily due to continuing inflationary pressures for raw materials and freight costs.
−Removed: As noted above, management believes it is reasonably likely the inflationary pressures experienced in 2022 will continue to some degree in 2023, particularly in the first half of 2023, and expects to continue managing these pressures through higher sales prices and product mix.
−Removed: For 2021, consolidated gross profit, as a percentage of net sales, was 36.0% compared with 37.2% for 2020.
−Removed: The decrease was primarily due to the impacts of COVID-19 and the resulting supply chain challenges driving higher costs and shortages for raw materials and labor.
+Added: The increase in gross profit percentage was primarily due to (i) higher pricing (approximately 4%), partially offset by (ii) the unfavorable impact of inflation on raw material costs (approximately 1%), and (iii) unfavorable manufacturing fixed cost absorption and product mix (approximately 2%).
+Added: Management believes it is reasonably likely that lower inflation and decreases in the cost of raw materials, partially offset by unfavorable manufacturing fixed cost absorption, will continue to some degree in 2024, particularly in the first half of 2024.
+Added: Management expects to continue managing the fixed cost under-absorption through higher sales prices, product mix, and plant productivity measures.
+Added: For 2022, consolidated gross profit, as a percentage of net sales, was 33.7% compared to 36.0% for 2021.
+Added: The decrease was primarily due to inflationary pressures for raw materials and freight costs.
Consolidated SG&A Expenses
For 2023, our consolidated SG&A expenses were $339.0 million versus $324.2 million in 2022.
+Added: Currency translation had a $1.5 million (0.5%) negative impact on the year-over-year comparison.
+Added: Consolidated SG&A expenses increased $14.9 million (4.6%) in 2023 compared to 2022, primarily due to (i) $6.5 million of higher selling expenses due to sales and marketing initiatives, (ii) $6.3 million of higher severance costs driven by employee headcount reductions and initiatives to reduce future costs, (iii) $4.4 million of higher professional fees, and (iv) $1.9 million of higher variable compensation costs.
+Added: These increases were partially offset by lower plant closure costs of approximately $4.1 million related to the closure of our Thailand and Russia operations in 2022.
+Added: As a percentage of net sales, SG&A expenses increased to 26.9% in 2023 versus 25.0% in 2022.
+Added: For 2022, our consolidated SG&A expenses were $324.2 million versus $324.3 million in 2021.
Currency translation had a $9.5 million (4.1%) positive impact on the year-over-year comparison.
1 unchanged sentence
As a percentage of net sales, SG&A expenses decreased to 25.0% in 2022 versus 27.0% in 2021.
−Removed: For 2021, our consolidated SG&A expenses decreased $8.9 million (2.7%) versus 2020.
−Removed: Currency translation had a $5.3 million (1.6%) negative impact on the year-over-year comparison.
−Removed: Consolidated SG&A expenses were lower in 2021 primarily due to (1) lower legal fees and other related costs of $12.6 million primarily due to the settlement of the SEC matter in the prior year period, and (2) lower severance costs of $9.1 million as the prior year included additional cost reduction initiatives implemented in response to COVID-19 as discussed above.
−Removed: These decreases were partially offset by higher labor costs of approximately $11.0 million due to higher performance-based compensation as target performance measures were achieved in 2021, partially offset by cost savings from prior year headcount reduction initiatives.
−Removed: As a percentage of net sales, SG&A expenses decreased to 27.0% in 2021 versus 30.2% in 2020.
Restructuring Plans
−Removed: 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.
−Removed: The plan involves a reduction of approximately 188 employees and the closure of the Company’s carpet tile manufacturing facility in Thailand at the end of the first quarter of 2022.
−Removed: In connection with this plan, the Company recognized restructuring charges of $2.0 million comprised of severance and asset impairment charges and other related charges during fiscal year 2022.
−Removed: In conjunction with the closure of its Thailand facility, the Company recorded a write-down of inventory of $2.5 million in fiscal year 2022 within cost of sales in the consolidated statements of operations.
−Removed: See Note 16 entitled “ Restructuring and Other Charges” of Part II, Item 8 of this Annual Report for additional information.
+Added: On September 8, 2021, the Company committed to a restructuring plan that continued to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, involving the closure of the Company’s manufacturing facility in Thailand.
+Added: During the second quarter of 2023, the Company completed the sale of the Thailand real estate and recognized a gain of $2.7 million.
+Added: 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.
+Added: See Note 16 entitled “Restructuring and Other” and Note 7 entitled “Property, Plant and Equipment” of Part II, Item 8 of this Annual Report for additional information.
Goodwill, Intangible Asset and Fixed Asset Impairment
−Removed: During 2022 and 2020, we recognized charges of $36.2 million and $121.3 million, respectively, for the impairment of goodwill and certain intangible assets.
−Removed: See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.
−Removed: During 2022 and 2021, we recognized fixed asset impairment charges of $2.9 million and $4.4 million, respectively, for projects that were abandoned.
−Removed: During 2020, we recognized fixed asset impairment charges of $5.0 million primarily related to certain FLOR design center closures and other projects that were abandoned or indefinitely delayed.
+Added: During 2023, there was no impairment of our goodwill or indefinite-lived intangible assets.
+Added: During 2022, we recognized a charge of $36.2 million for the impairment of goodwill and certain intangible assets.
+Added: See Note 12 entitled “ Goodwill and Other Intangible Assets ” of Part II, Item 8 of this Annual Report for additional information.
+Added: During 2023, there were no material fixed asset impairment charges.
+Added: In fiscal years 2022 and 2021, we recognized fixed asset impairment charges of $2.9 million and $4.4 million, respectively, for projects that were abandoned.
These charges are included in selling, general and administrative expenses in the consolidated statements of operations.
Interest Expense
+Added: For 2023, our interest expense was $31.8 million, versus $29.9 million in 2022, primarily due to higher interest rates on outstanding term loan borrowings under the Syndicated Credit Facility, partially offset by lower outstanding term loan borrowings under the Facility.
+Added: Our average borrowing rate under the Syndicated Credit Facility as of December 31, 2023, was 6.61% compared to 5.78% at January 1, 2023.
For 2022, our interest expense was $29.9 million, versus $29.7 million in 2021.
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Our average borrowing rate under the Syndicated Credit Facility as of January 1, 2023, was 5.78% compared to 1.91% at January 2, 2022.
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−Removed: For 2021, our interest expense increased $0.5 million to $29.7 million, versus $29.2 million in 2020, primarily due to (1) higher fixed-rate interest expense on the Senior Notes debt, which replaced variable-rate debt under the Syndicated Credit Facility, and (2) $4.9 million of deferred losses recognized on terminated interest rate swaps that were reclassified from accumulated other comprehensive loss into interest expense during the year.
−Removed: These increases were partially offset by $60 million of lower outstanding borrowings under the Syndicated Credit Facility compared to 2020.
−Removed: Our average borrowing rate under the Syndicated Credit Facility was 1.91% for 2021 compared to 1.89% in 2020.
−Removed: For the year ended January 1, 2023, the Company recorded income tax expense of $22.4 million on pre-tax income of $41.9 million resulting in an effective tax rate of 53.3%, as compared to an income tax expense of $17.4 million on pre-tax income of $72.6 million resulting in an effective tax rate of 24.0% for the year ended January 2, 2022.
−Removed: The effective tax rate for the year ended January 1, 2023 was significantly impacted by a non-deductible goodwill impairment charge.
−Removed: Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for the year ended January 1, 2023.
−Removed: The increase in the effective tax rate, excluding the goodwill impairment charge, was primarily due to an increase in non-deductible employee compensation, an increase in the valuation allowance on net operating loss and interest carryforwards, unfavorable changes related to the cash surrender value of company-owned life insurance policies and unfavorable changes related to foreign exchange movements.
−Removed: For the year ended January 2, 2022, the Company recorded income tax expense of $17.4 million on pre-tax income of $72.6 million resulting in an effective tax rate of 24.0%, as compared to an income tax benefit of $7.5 million on pre-tax loss of $79.4 million resulting in an effective tax rate of 9.4% for the year ended January 3, 2021.
−Removed: The effective tax rate for the year ended January 3, 2021 was significantly impacted by a non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions taken in prior years on discontinued operations.
−Removed: Excluding the impact of the non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, the effective tax rate was 14.1% for the year ended January 3, 2021.
−Removed: The increase in the effective tax rate for the year ended January 2, 2022 as compared to the year ended January 3, 2021 was primarily due to the one-time favorable impacts of amending prior year tax returns during the period ended January 3, 2021, an increase in non-deductible employee compensation and an increase in the valuation allowance on net operating loss and interest carryforwards.
−Removed: This increase was partially offset by a decrease in non-deductible business expenses.
+Added: Other Expense
+Added: During 2023, other expense, net, was $9.1 million, versus $3.6 million in 2022.
+Added: The increase was primarily due to the substantial liquidation of our foreign subsidiaries in Brazil and Russia and the resulting recognition of $6.2 million of cumulative translation adjustments reclassified from accumulated other comprehensive loss.
+Added: For fiscal year 2023, the Company recorded income tax expense of $19.1 million on pre-tax income of $63.7 million, resulting in an effective tax rate of 30.1%.
+Added: This compares with income tax expense of $22.4 million on pre-tax income of $41.9 million, resulting in an effective tax rate of 53.3%, for fiscal year 2022.
+Added: The effective tax rate for fiscal year 2022 was significantly impacted by a non-deductible goodwill impairment charge.
+Added: Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for fiscal year 2022.
+Added: The decrease in the effective tax rate for fiscal year 2023, as compared to fiscal year 2022, excluding the goodwill impairment, was primarily due to favorable changes related to the cash surrender value of Company-owned life insurance, utilization of foreign tax credits, favorable U.S.
+Added: tax effects from the repatriation of previously taxed foreign earnings, and non-deductible charges related to the closure of the Company’s manufacturing facility in Thailand in fiscal year 2022.
+Added: This decrease was partially offset by a favorable change to unrecognized tax benefits in fiscal year 2022.
+Added: For fiscal year 2022, the Company recorded income tax expense of $22.4 million on pre-tax income of $41.9 million, resulting in an effective tax rate of 53.3%.
+Added: This compares with income tax expense of $17.4 million on pre-tax income of $72.6 million, resulting in an effective tax rate of 24.0% for fiscal year 2021.
+Added: The effective tax rate for fiscal year 2022 was significantly impacted by a non-deductible goodwill impairment charge.
+Added: Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for fiscal year 2022.
+Added: The increase in the effective tax rate for fiscal year 2022, as compared to fiscal year 2021, excluding the goodwill impairment charge, was primarily due to an increase in non-deductible employee compensation, an increase in the valuation allowance on net operating loss and interest carryforwards, unfavorable changes related to the cash surrender value of Company-owned life insurance policies and unfavorable changes related to foreign exchange movements.
Segment Results
−Removed: As discussed above, in 2021 the Company determined that it has two operating and reportable segments – AMS and EAAA.
−Removed: Segment information presented below for 2020 has been recast to conform to the new reportable segment structure.
+Added: As discussed above, the Company has two operating and reportable segments – AMS and EAAA.
See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information .
2 unchanged sentences
Fiscal Year Percentage Change
−Removed: 2022 2021 2020 2022 compared with 2021 2021 compared with 2020
+Added: 2023 2022 2021 2023 compared with 2022
+Added: 2022 compared with 2021
(in thousands)
3 unchanged sentences
(1) Includes allocation of corporate SG&A expenses.
−Removed: Excludes intangible asset impairment charges, Cyber Event costs, and restructuring, asset impairment, severance and other costs.
+Added: Excludes Cyber Event costs, intangible asset impairment charge, and restructuring, asset impairment, severance, and other, net.
See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.
AMS segment net sales for 2023 compared with 2022
+Added: During 2023, net sales in AMS decreased 2.2% versus 2022, comprised of lower sales volume partially offset by higher prices.
+Added: On a market segment basis, the AMS sales decrease was most significant in the retail (down 50.6%) market segment partially offset by increases in the education (up 7.9%), corporate office (up 4.1%) and residential living (up 15.4%) market segments.
+Added: AMS segment net sales for 2022 compared with 2021
During 2022, net sales in AMS increased 15.7% versus 2021, comprised of higher sales volumes and higher prices.
1 unchanged sentence
These increases were partially offset by decreases in the consumer residential (down 8.7%) market segment.
−Removed: Ta b le of Contents
−Removed: AMS segment net sales for 2021 compared with 2020
−Removed: During 2021, net sales in AMS increased 9.7% versus 2020, comprised of higher sales volumes and higher prices.
−Removed: On a market segment basis, the AMS sales increase was most significant in non-corporate office market segments including healthcare (up 19.1%), retail (up 19.1%) and education (up 18.3%).
−Removed: Sales in the corporate office market increased 6.8% in 2021 compared to 2020.
−Removed: These increases were partially offset by decreases in the hospitality (down 38.3%) and public buildings (down 20%) market segments.
AMS AOI for 2023 compared with 2022
+Added: AOI in AMS decreased 14.2% during 2023 compared to 2022, primarily due to unfavorable manufacturing fixed cost absorption and lower sales, partially offset by lower freight costs.
+Added: AMS SG&A expenses as a percentage of net sales increased approximately 1.1% compared to 2022, primarily due to higher selling expenses, which contributed to the decrease in AOI for the current year.
+Added: As a percentage of net sales, AOI decreased to 11.9% in 2023 versus 13.6% in 2022.
+Added: AMS AOI for 2022 compared with 2021
AOI in AMS increased 20.4% during 2022 compared to 2021, primarily due to higher sales.
−Removed: AMS SG&A expenses as a percentage of net sales in 2022 decreased approximately 0.7% compared to 2021, primarily due to lower administrative costs, which contributed to the increase in AOI for the current year.
+Added: AMS SG&A expenses as a percentage of net sales in 2022 decreased approximately 0.7% compared to 2021, primarily due to lower administrative costs, which contributed to the increase in AOI in 2022.
As a percentage of net sales, AOI increased to 13.6% in 2022 versus 13.1% in 2021.
−Removed: AMS AOI for 2021 compared with 2020
−Removed: AOI in AMS decreased 4.6% during 2021 compared to 2020 primarily due to higher cost of sales as a result of inflationary pressures on raw materials, freight and labor costs driving an approximately 3.0% increase in cost of sales as a percentage of net sales compared to the prior year.
−Removed: The increase in cost of sales as a percentage of net sales was partially offset by productivity efficiencies during the year.
−Removed: AOI as a percentage of net sales for fiscal 2021 decreased to 13.1% compared to 15.0% in 2020 due to the global supply chain pressures discussed above.
EAAA Segment – Net Sales and AOI
1 unchanged sentence
Fiscal Year Percentage Change
−Removed: 2022 2021 2020 2022 compared with 2021 2021 compared with 2020
+Added: 2023 2022 2021 2023 compared with 2022
+Added: 2022 compared with 2021
(in thousands)
3 unchanged sentences
(1) Includes allocation of corporate SG&A expenses.
−Removed: Excludes goodwill and intangible asset impairment charges, purchase accounting amortization, Thailand plant closure inventory write-down, Cyber Event costs, and restructuring, asset impairment, severance and other costs.
+Added: Excludes goodwill and intangible asset impairment charges, purchase accounting amortization, Thailand plant closure inventory write-down, Cyber Event costs, and restructuring, asset impairment, severance, and other, net.
See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.
EAAA segment net sales for 2023 compared with 2022
+Added: During 2023, net sales in EAAA decreased 3.6% versus 2022, comprised of lower sales volume partially offset by higher selling prices.
+Added: Slower economic recovery and decreased customer demand in Asia resulted in approximately 25% lower net sales in Asia during 2023 compared to 2022.
+Added: Currency fluctuations had a positive impact of approximately $3.5 million (0.6%) on EAAA net sales for 2023 compared to 2022 due to the strengthening of the Euro, partially offset by the weakening of the Australian dollar and Chinese Renminbi against the U.S.
+Added: On a market segment basis, the EAAA sales decrease was most significant in the corporate office (down 3.5%), healthcare (down 23.5%), retail (down 22.8%), and education (down 3.9%) market segments, partially offset by increases in the hospitality (up 11.5%) market segment.
+Added: EAAA segment net sales for 2022 compared with 2021
During 2022, net sales in EAAA decreased 0.9% versus 2021.
2 unchanged sentences
These increases were offset by decreases in the public buildings (down 25.7%), transportation (down 21.3%), retail (down 14.9%) and healthcare (down 8.2%) market segments.
−Removed: EAAA segment net sales for 2021 compared with 2020
−Removed: During 2021, net sales in EAAA increased 7.7% versus 2020, comprised of higher sales volumes and higher prices.
−Removed: Currency fluctuations had an approximately $21.5 million (4.2%) positive impact on EAAA’s 2021 sales compared to 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S.
−Removed: On a market segment basis, the 2021 EAAA sales increase was most significant in non-corporate office market segments including retail (up 53.8%), public buildings (up 30.2%) and healthcare (up 19.0%).
−Removed: Sales in the corporate office market increased 2.4% in 2021 compared to 2020.
−Removed: These increases were partially offset by a decrease in the education (down 2.6%) market segment.
−Removed: Ta b le of Contents
EAAA AOI for 2023 compared with 2022
+Added: AOI in EAAA decreased 4.8% during 2023 versus 2022 primarily due to the impact of lower sales, inflationary pressures on raw material costs, and unfavorable manufacturing fixed cost absorption on lower production volumes.
+Added: Currency fluctuations had no material impact on EAAA AOI in 2023 compared to 2022.
+Added: As a percentage of net sales, AOI was 5.5% in both 2023 and 2022.
+Added: EAAA AOI for 2022 compared with 2021
AOI in EAAA decreased 19.3% during 2022 versus 2021 due to continuing inflationary pressures on raw materials and higher energy costs (which were up approximately 28%) primarily due to natural gas shortages in connection with the ongoing conflict between Russia and Ukraine.
The decrease in AOI was also due to negative currency fluctuations of approximately $6.5 million (9.9%) due to the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S.
−Removed: EAAA SG&A expenses as a percentage of net sales in 2022 decreased approximately 2.5% compared to last year, which partially offset the negative impacts on AOI discussed above.
+Added: EAAA SG&A expenses as a percentage of net sales in 2022 decreased approximately 2.5% compared to the prior year, which partially offset the negative impacts on AOI discussed above.
As a percentage of net sales, AOI decreased to 5.5% in 2022 versus 6.8% in 2021.
−Removed: EAAA AOI for 2021 compared with 2020
−Removed: AOI in EAAA increased 74.1% during 2021 versus 2020.
−Removed: Currency fluctuations had an approximately $3.1 million (6.4%) positive impact on AOI for 2021.
−Removed: SG&A expenses as a percentage of net sales decreased to 23.0% in 2021 compared to 24.6% in 2020 due to savings from cost reduction initiatives implemented in the prior year.
−Removed: AOI as a percentage of net sales increased to 6.8% in 2021 compared to 4.2% in 2020, due primarily to higher sales as discussed above.
Financial Condition, Liquidity and Capital Resources
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We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations.
−Removed: Below is a summary of our material cash requirements for future periods:
+Added: Below are estimates of our material cash requirements for future periods.
+Added: The short-term period represents payments due within the 12 months following December 31, 2023, and the long-term period represents payments due beyond the short-term period.
Payments Due by Period
13 unchanged sentences
Our purchase obligations are for non-cancellable agreements primarily for raw material purchases and capital expenditures.
−Removed: Our pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and excludes the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans over the next ten years.
−Removed: Based on current interest rates and debt levels, we expect our aggregate interest expense for 2023 to be between $32 million and $33 million.
−Removed: We estimate aggregate capital expenditures in 2023 to be approximately $32 million, although we are not committed to these amounts.
−Removed: Ta b le of Contents
−Removed: At January 1, 2023, we had $97.6 million in cash.
+Added: Our pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and exclude the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans.
+Added: Based on current interest rates and debt levels, we expect our aggregate interest expense for 2024 to be approximately $27 million.
+Added: We estimate aggregate capital expenditures in 2024 to be approximately $42 million, although we are not committed to this amount.
+Added: At December 31, 2023, we had $110.5 million in cash.
Approximately $5.7 million of this cash was located in the U.S., and the remaining $104.8 million was located outside of the U.S.
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state income taxes on these amounts in accordance with applicable accounting standards.
−Removed: As of January 1, 2023, we had $226.3 million of borrowings outstanding under our Facility, of which $202.1 million were term loan borrowings and $24.2 million were revolving loan borrowings.
+Added: As of December 31, 2023, we had $121.7 million of borrowings outstanding under our Facility, all of which were term loan borrowings.
+Added: There were no revolving loan borrowings outstanding as of December 31, 2023.
Additionally, $1.6 million in letters of credit were outstanding under the Facility at the end of fiscal year 2023.
−Removed: As of January 1, 2023, we had additional borrowing capacity of $274.1 million under the Facility.
−Removed: As of January 1, 2023, the weighted average interest rate on borrowings outstanding under the Facility was 5.78%.
−Removed: As of January 1, 2023, there were no other lines of credit available to the Company.
−Removed: On November 17, 2020, we issued $300 million aggregate principal amount of 5.50% Senior Notes due 2028 (the “Senior Notes”), which are discussed further below.
−Removed: As of January 1, 2023, we had $300.0 million of Senior Notes outstanding.
+Added: As of December 31, 2023, we had additional borrowing capacity of $298.4 million under the Facility.
+Added: As of December 31, 2023, the weighted average interest rate on borrowings outstanding under the Facility was 6.61%.
+Added: As of December 31, 2023, there were no other lines of credit available to the Company.
+Added: In addition, as of December 31, 2023, we had $300.0 million of 5.50% Senior Notes due 2028 (the “Senior Notes”) outstanding, which are discussed further below.
It is important for you to consider that we have a significant amount of indebtedness.
3 unchanged sentences
It is also important for you to consider that borrowings under our Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that interest rates may increase.
−Removed: During 2020, we entered into fixed rate Senior Notes (as described below), which reduced the amount of indebtedness subject to interest rate risk.
−Removed: In the fourth quarter of 2020, we terminated our interest rate swaps that were previously being used to fix a portion of our variable rate debt.
−Removed: For information regarding the current variable interest rates of these borrowings, the potential impact on our interest expense from hypothetical increases in short term interest rates, and the interest rate swap transaction, please see the discussion in Item 7A of this Report.
+Added: For information regarding the current variable interest rates of these borrowings, the potential impact on our interest expense from hypothetical increases in short term interest rates, and the former interest rate swap transaction, please see the discussion in Item 7A of this Report.
We are not a party to any material off-balance sheet arrangements.
Balance Sheet
−Removed: Inventories, net, were $306.3 million at January 1, 2023 compared to $265.1 million at January 2, 2022.
−Removed: The increase of $41.2 million was primarily due to higher raw material costs and freight costs due to continuing inflationary pressures and inventory build driven by higher customer demand.
−Removed: Ta b le of Contents
+Added: Accounts receivable, net, were $163.4 million at December 31, 2023, compared to $182.8 million at January 1, 2023.
+Added: The decrease of $19.4 million was primarily due to customer collections in 2023, including the impact of delays in customer billings from the Cyber Event, in which the due dates for those delayed billings were pushed from the fourth quarter of 2022 to the first quarter of 2023.
+Added: Inventories, net, were $279.1 million at December 31, 2023, compared to $306.3 million at January 1, 2023.
+Added: The decrease of $27.2 million was primarily due to decreases in the cost of raw materials during the current year, lower manufacturing volume due to reduced customer demand, and improvements in working capital management.
Analysis of Cash Flows
12 unchanged sentences
The increase was primarily due to the following:
+Added: • Cash provided by operating activities was $142.0 million for 2023, which represents an increase of $99.0 million compared to 2022.
+Added: The increase in operating cash flows was primarily due to a greater source of cash from working capital in 2023.
+Added: Specifically, customer collections in 2023 contributed to a decrease in accounts receivable, primarily attributable to delays in customer billings from the Cyber Event, in which due dates for those delayed billings were pushed from the fourth quarter of 2022 to the first quarter of 2023.
+Added: The 2022 comparable period also included a greater use of cash for working capital attributable to an increase in inventories compared with 2023.
+Added: • Cash used in investing activities was $19.5 million for 2023, which represents an increase of $1.1 million compared to 2022.
+Added: The increase was primarily attributable to an increase in capital expenditures due to increased capital investment, partially offset by the proceeds of approximately $6.6 million from the sale of the Company’s Thailand real estate in 2023.
+Added: • Cash used in financing activities was $111.6 million for 2023, which represents an increase of $92.1 million compared to 2022.
+Added: The year-over-year difference was primarily due to lower revolving loan borrowings combined with higher repayments of term loan borrowings in 2023 as a result of cash generated from operating activities as described above.
+Added: Fiscal year 2022 also included repurchases of the Company’s common stock that did not occur in 2023, which partially offset the increased use of cash for financing activities in 2023 compared with 2022.
+Added: We ended 2022 with $97.6 million in cash, an increase of $0.3 million during the year.
+Added: The increase was primarily due to the following:
• Cash provided by operating activities was $43.1 million for 2022, which represents a decrease of $43.6 million compared to 2021.
The decrease was primarily due to a greater use of cash for working capital during 2022.
−Removed: Specifically, higher inventories as a result of higher raw material costs and input costs contributed to the greater use of cash for working capital compared to last year.
+Added: Specifically, higher inventories as a result of higher raw material costs and input costs contributed to the greater use of cash for working capital in 2022.
Higher variable compensation payouts in the first quarter of 2022 (related to 2021 performance) also contributed to the increased use of cash for 2022.
1 unchanged sentence
• Cash used in investing activities was $18.4 million for 2022, which represents a decrease of $9.6 million compared to 2021.
−Removed: The decrease from the comparable period was primarily due to a decrease in capital expenditures due to reduced capital investment.
+Added: The decrease was primarily due to reduced capital expenditures.
• Cash used in financing activities was $19.5 million for 2022, which represents a decrease of $41.4 million compared to 2021.
The year-over-year difference was primarily due to higher revolving loan borrowings in 2022 as a source of cash to fund operating activities as described above, offset by a use of cash for repurchases of the Company’s common stock pursuant to a new share repurchase program adopted in the second quarter of 2022.
−Removed: Fiscal year 2021 also includes higher repayments of approximately $60 million of term loan borrowings which contributed to a greater use of cash in that period.
+Added: Fiscal year 2021 also included higher repayments of approximately $60 million of term loan borrowings which contributed to a greater use of cash in that period.
We ended 2021 with $97.3 million in cash, a decrease of $5.8 million during the year.
8 unchanged sentences
In 2021, we repaid approximately $60 million in term loan borrowings which contributed to the increase in cash used in financing activities (compared with 2020, when repayments on term loan borrowings were largely funded with the proceeds from the issuance of the $300 million Senior Notes).
−Removed: Ta b le of Contents
−Removed: We ended 2020 with $103.1 million in cash, an increase of $21.8 million during the year.
−Removed: The increase was primarily due to the following:
−Removed: • Cash provided by operating activities was $119.1 million for 2020, which represents a decrease of $22.7 million compared to 2019.
−Removed: The decrease was primarily due to lower net income due to the impacts of COVID-19, offset by working capital sources of cash, specifically a decrease in accounts receivable of $40.1 million, lower inventories of $38.7 million and lower prepaid and other expenses of $13.0 million.
−Removed: These sources of cash were offset by a $60.9 million use of cash in accounts payable and accrued expenses to fund normal operations.
−Removed: • Cash used in investing activities was $61.7 million for 2020, which represents a decrease of $12.5 million from 2019.
−Removed: The decrease was primarily due to lower capital expenditures compared to 2019 due to fewer project demands and lower capital investment as a result of the impacts of COVID-19.
−Removed: • Cash used in financing activities was $42.7 million for 2020, which represents a decrease of $24.0 million compared to 2019.
−Removed: Financing activities for 2020 include higher loan borrowings of $320.0 million primarily due to the issuance of $300 million of Senior Notes, offset by (1) higher repayments of revolving and term loan borrowings as the proceeds from the issuance of the Senior Notes were used to repay $290.7 million of outstanding term and revolving loan borrowings under the Facility, and (2) a decrease in dividends paid of $9.8 million.
Share Repurchases
1 unchanged sentence
The program has no specific expiration date.
+Added: No shares of common stock were repurchased during 2023 pursuant to this program.
During 2022, the Company repurchased and retired an aggregate of 1,383,682 shares at a weighted average price of $12.41 per share, or $17.2 million, pursuant to this program.
−Removed: As of January 1, 2023, approximately $82.8 million remains authorized pursuant to this program for future share repurchases.
+Added: As of December 31, 2023, approximately $82.8 million remains authorized pursuant to this program for future share repurchases.
The program does not require the Company to repurchase a specific number or amount of shares, or to do so within any specific time periods.
1 unchanged sentence
In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our Facility.
−Removed: At January 1, 2023, the Facility provided the Company and certain of its subsidiaries with a multicurrency revolving loan facility up to $300 million, as well as other U.S.
+Added: At December 31, 2023, the Facility provided the Company and certain of its subsidiaries with a multicurrency revolving loan facility up to $300 million, as well as other U.S.
denominated and multicurrency term loans.
4 unchanged sentences
Under the Facility, interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 2.00%, depending on the Company’s consolidated net leverage ratio (as defined in the Facility agreement) as of the most recently completed fiscal quarter.
−Removed: Interest on Eurocurrency-based loans (or SOFR-based and alternative currency loans following the fifth amendment to the Facility as discussed below) and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable Eurocurrency rate (or SOFR rate or alternative currency rate following the fifth amendment to the Facility as discussed below), depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.
+Added: Interest on SOFR-based and alternative currency loans are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% 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 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.
−Removed: Ta b le of Contents
+Added: Fees for commercial letters of credit are computed as 1.00% per annum of the amount available to be drawn under such letters of credit.
+Added: Fees for standby letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% per annum of the amount available to be drawn under such standby letters of credit, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.
LIBOR Transition
−Removed: 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.
−Removed: This announcement indicated that the continuation of LIBOR on the current basis was not guaranteed after 2021, and LIBOR may be discontinued or modified.
−Removed: Additionally, certain U.S.
−Removed: dollar LIBOR rates will be discontinued by June 2023.
−Removed: The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) in April 2018 as an alternative for LIBOR.
−Removed: SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S.
−Removed: Treasury securities.
−Removed: On September 29, 2022 the FCA announced its decision to stop publishing the 1-month and 6-month LIBOR rates by the end of March 2023.
On December 9, 2021 and October 14, 2022, we entered into the fourth and fifth amendments, respectively, to our Facility.
25 unchanged sentences
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.
−Removed: Ta b le of Contents
Under the Facility, we are required to make quarterly amortization payments of the term loan borrowings.
1 unchanged sentence
We are in compliance with all covenants under the Facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.
−Removed: In the fourth quarter of 2020, we terminated our interest rate swaps and paid approximately $13 million to terminate the swap agreements.
−Removed: For additional information on interest rates, please see Item 7A and Note 9 entitled “Long-Term Debt” in Item 8 of this Report.
−Removed: On November 17, 2020, the Company issued $300 million aggregate principal amount of 5.50% Senior Notes due 2028.
+Added: As of December 31, 2023, the Company had $300 million of Senior Notes outstanding.
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.
−Removed: The Company used the net proceeds to repay $269.7 million of outstanding term loan borrowings and $21.0 million of outstanding revolving loan borrowings under the Facility.
−Removed: In connection with the issuance of the Senior Notes, the Company recorded $5.7 million of debt issuance costs.
−Removed: These debt issuance costs were recorded as a reduction of long-term debt in the consolidated balance sheets and will be amortized over the life of the outstanding debt.
−Removed: 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.
+Added: Debt issuance costs associated with the Senior Notes are recorded as a reduction of long-term debt in the consolidated balance sheets and are amortized over the life of the outstanding debt.
+Added: 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.
The Company’s foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors.
Net sales for the non-guarantor subsidiaries were approximately $584 million for fiscal year 2023, $597 million for fiscal year 2022, and $594 million for fiscal year 2021.
−Removed: Total indebtedness of the non-guarantor subsidiaries was approximately $43 million as of January 1, 2023, and $45 million as of January 2, 2022.
+Added: Total indebtedness of the non-guarantor subsidiaries was approximately $133 million as of December 31, 2023.
+Added: Included in this $133 million is $103 million of indebtedness from the non-guarantor subsidiaries to guarantor subsidiaries, resulting from the dividend of an asset — a note receivable — by a non-guarantor subsidiary to a guarantor subsidiary.
+Added: Total indebtedness of non-guarantor subsidiaries was approximately $43 million as of January 1, 2023.
+Added: There was no indebtedness from non-guarantor subsidiaries to guarantor subsidiaries as of January 1, 2023.
The Senior Notes can be redeemed on or after December 1, 2023, at specified redemption prices.
1 unchanged sentence
Forward-Looking Statements
−Removed: The Company continues to be challenged by high inflation and a dynamic geopolitical environment.
−Removed: We e xpect these impacts to include significant cost increases in our raw materials globally and continued labor cost increases.
−Removed: The impacts may also potentially include raw material shortages, higher freight costs, shipping delays, and other disruptions.
−Removed: These impacts to our supply chain and manufacturing will increase our costs and adversely affect our gross margins, they may inhibit our ability to manufacture and ship product timely, and at times they may inhibit our ability to meet customer demands and expectations.
−Removed: To mitigate these impacts, we plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.
−Removed: The COVID-19 pandemic and global supply chain disruptions continue to impact areas where we sell our products and services — most recently in China.
−Removed: Its impacts on our full fiscal year 2023 results and beyond are uncertain.
−Removed: We believe the most significant elements of uncertainty are (1) the intensity and duration of the impact on construction, renovation, and remodeling;
−Removed: (2) corporate, government, and consumer spending levels and sentiment;
−Removed: (3) the ability of our sales channels, supply chain, manufacturing, and distribution partners to continue operating through disruptions;
−Removed: and (4) the severity of global supply chain disruptions and their effects on inflation, labor costs, raw material shortages, and other factors that disrupt our supply chain and manufacturing facilities.
−Removed: Any or all of these factors could negatively impact our financial position, results of operations, cash flows, and outlook.
−Removed: As the impact of the COVID-19 pandemic continues to affect companies with global operations, specifically as it relates to the global supply chain, we anticipate that, at a minimum, our business and results in the first half of 2023 will continue to be affected, and the timeline and pace of recovery is uncertain.
+Added: The Company expects decreases in the cost of raw materials and freight to continue into fiscal year 2024, due to a stabilizing but still challenging supply chain environment.
+Added: We expect these impacts will benefit our gross profit margins in 2024.
+Added: We anticipate that a continuing slow post COVID recovery in China, slow market conditions in the rest of Asia, and significant financial pressures in the commercial office market globally will adversely impact our future performance and demand for our products.
Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements.
−Removed: However, the Company’s cash flows from operations can be affected by numerous factors including the uncertainty of COVID-19 and its impact on global operations, raw material availability and cost, demand for our products, and other factors described in “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.
−Removed: Ta b le of Contents
+Added: However, the Company’s cash flows from operations can be affected by numerous factors including raw material availability and cost, demand for our products, and other factors described in “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
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A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset.
−Removed: Management’s judgement in estimating the undiscounted cash flows based on market conditions and trends, and other industry specific metrics used in determining the fair value is subject to uncertainty.
+Added: Management’s judgment in estimating the undiscounted cash flows based on market conditions and trends, and other industry specific metrics used in determining the fair value is subject to uncertainty.
If actual market value is less favorable than that estimated by management, additional write-downs may be required.
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To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.
−Removed: As of January 1, 2023, and January 2, 2022, we had state net operating loss carryforwards of $162.8 million and $153.0 million, respectively.
+Added: As of December 31, 2023, and January 1, 2023, we had state net operating loss carryforwards of $192.1 million and $162.8 million, respectively.
Certain of these state net operating loss carryforwards are reserved with a valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future.
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If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.
−Removed: We review the carrying values of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying value of each reporting may exceed its fair value as set forth in Accounting Standards Codification 350 “ Intangibles — Goodwill and Other ”, as amended by Accounting Standards Update (“ASU”) 2017-04 .
+Added: We review the carrying values of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying value of a reporting may exceed its fair value as set forth in Accounting Standards Codification 350 “ Intangibles — Goodwill and Other ”, as amended by Accounting Standards Update (“ASU”) 2017-04 .
We test goodwill at the reporting unit level, which is an operating segment or one level below an operating segment.
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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.
−Removed: The assumptions we use to estimate future cash flows and the development of any forecasts to be used in the fair value determination are subject to inherent risk and judgement.
+Added: The assumptions we use to estimate future cash flows and the development of any forecasts to be used in the fair value determination are subject to inherent risk and judgment.
If we determine that the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired.
If we determine that the carrying value of the reporting unit exceeds its estimated fair value, we measure the goodwill impairment charge based on the excess of the reporting unit’s carrying value over its fair value consistent with ASU 2017-04, “ Simplifying the Test for Goodwill Impairment ”, which we adopted on December 30, 2019.
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+Added: During the fourth quarter of 2023, we performed our annual quantitative goodwill impairment testing.
+Added: We focused our testing on the Americas reporting unit since it is the only reporting unit with an allocated goodwill balance.
+Added: The allocated goodwill balances for our EMEA and Asia Pacific reporting units were written off in prior years as a result of goodwill impairment charges.
+Added: The Company performed limited procedures for our EMEA and Asia Pacific reporting units during the 2023 goodwill testing to facilitate a reconciliation of market capitalization.
+Added: The annual quantitative goodwill testing performed in 2023 for our Americas reporting unit was consistent with our prior year methodology.
+Added: T he Company prepared valuations for the Americas reporting unit 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 the reporting unit.
+Added: In preparing the valuation, 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, and our expected financial performance, including planned revenue and operating income for the Americas reporting unit.
+Added: 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.
+Added: The discount rate used for the Americas reporting unit was 11.5% in 2023 compared to 13.5% in 2022, which fluctuated based on a risk premium assigned to estimates of expected future performance.
+Added: There is inherent uncertainty associated with key assumptions and estimates used in our impairment testing, including the impact of macroeconomic conditions.
+Added: As a result of our 2023 annual goodwill testing, we determined that the fair value of our Americas reporting unit exceeded its carrying value by 71% at the 2023 m easurement date, and therefore no impairment was indicated.
+Added: The goodwill balance of $105.4 million at December 31, 2023, is allocated entirely to our Americas reporting unit.
+Added: We have not made any material changes to our goodwill impairment loss assessment methodology during the past three fiscal years.
+Added: Currently, we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses.
+Added: However, we cannot predict or control market factors, including the impact of macroeconomic conditions and the impact of certain risks inherent to our operations, as described in Item 1A “Risk Factors” of this Annual Report.
+Added: If actual results are not consistent with our assumptions and estimates, we may be exposed to additional goodwill impairment losses that could be material.
During the fourth quarter of 2022, we performed our annual goodwill quantitative testing.
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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.
−Removed: For fiscal 2022, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired.
+Added: For fiscal year 2022, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired.
We recorded a goodwill impairment charge of $29.4 million to write off all the goodwill allocated to our EMEA reporting unit as the excess of carrying value over fair value was higher than the recorded amount of goodwill for the reporting unit.
−Removed: The fair value of our Americas reporting unit exceeded its carrying value by 71%, and the Americas reporting unit was not impaired as of the 2022 measurement date.
+Added: As of the 2022 measurement date, the fair value of our Americas reporting unit exceeded its carrying value by 71%, and the Americas reporting unit was not impaired.
The Americas reporting unit had a goodwill balance of $102.4 million at the end of fiscal 2022.
−Removed: The goodwill balance allocated to our Asia-Pacific reporting unit was previously written off in connection with the 2020 goodwill impairment, as described below.
−Removed: We have not made any material changes to our goodwill impairment loss assessment methodology during the past three fiscal years.
−Removed: Currently, we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses.
−Removed: However, we cannot predict or control market factors, including the impact of macroeconomic conditions and the impact of certain risks inherent to our operations, as described in Item 1A “Risk Factors” of this Annual Report.
−Removed: If actual results are not consistent with our assumptions and estimates, we may be exposed to additional goodwill impairment losses that could be material.
−Removed: During the fourth quarters of 2021 and 2020 we performed the annual goodwill impairment test consistent with the methodology described above, and all reporting units that had a goodwill balance were noted to have a fair value that exceeded their carrying value.
−Removed: In the first quarter of 2020, we performed a quantitative goodwill impairment test as there were indicators of impairment due to the impact of COVID-19 to our operations.
−Removed: As a result, in the first quarter of 2020, we determined that our EMEA and Asia-Pacific reporting units were impaired and recorded goodwill impairment charges of $99.2 million and $17.3 million, respectively.
−Removed: See Note 12 entitled “Goodwill and Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.
+Added: The goodwill balance allocated to our Asia-Pacific reporting unit was previously written off in connection with the 2020 goodwill impairment.
+Added: During the fourth quarter of 2021, we performed the annual goodwill impairment test consistent with prior years and the methodology described above, and all reporting units that had a goodwill balance were noted to have a fair value that exceeded their carrying value.
+Added: See Note 12 entitled “ Goodwill and Other Intangible Assets ” of Part II, Item 8 of this Annual Report for additional information.
We determine the value of inventories using the lower of cost or net realizable value.
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If actual market conditions are less favorable than those projected by management, additional write-downs may be required.
−Removed: Management’s judgement in estimating our reserves for inventory obsolescence is based on continuous examination of our inventories to determine if there are indicators that carrying values exceed net realizable values.
+Added: Management’s judgment in estimating our reserves for inventory obsolescence is based on continuous examination of our inventories to determine if there are indicators that carrying values exceed net realizable values.
Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions.
While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences may continue to change, and we could experience additional inventory write-downs in the future.
−Removed: Our inventory reserve on January 1, 2023 and January 2, 2022, was $28.5 million and $27.1 million, respectively.
+Added: Our inventory reserve on December 31, 2023 and January 1, 2023, was $34.0 million and $28.5 million, respectively.
To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2023 net income would be higher or lower by approximately $2.4 million, on an after-tax basis.
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Pension Benefits.
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By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially estimated.
−Removed: Our allowance for expected credit losses on January 1, 2023 and January 2, 2022, was $4.0 million and $5.0 million, respectively.
+Added: Our allowance for expected credit losses on December 31, 2023 and January 1, 2023, was $3.0 million and $4.0 million, respectively.
To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2023 net income would be higher or lower by approximately $0.2 million, on an after-tax basis, depending on whether the actual collectability was better or worse, respectively, than the estimated allowance.
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We record a provision related to warranty costs based on historical experience and future expectations and periodically adjust these provisions to reflect changes in actual experience.
−Removed: Our warranty and sales allowance reserve on January 1, 2023 and January 2, 2022, was $2.1 million and $2.7 million, respectively.
+Added: Our warranty and sales allowance reserve on December 31, 2023 and January 1, 2023, was $4.3 million and $2.1 million, respectively.
Actual warranty expense incurred could vary significantly from amounts that we estimate.
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Please see Note 2 entitled “Recent Accounting Pronouncements” in Item 8 of this Report for discussion of these items.
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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.