INTERFACE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par values) JUNE 30, 2024 DECEMBER 31, 2023 (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 94,187 $ 110,498 Accounts receivable, net 179,604 163,386 Inventories, net 281,074 279,079 Prepaid expenses and other current assets 36,953 30,895 Total current assets 591,818 583,858 Property, plant and equipment, net 281,719 291,140 Operating lease right-of-use assets 80,696 87,519 Deferred tax asset 21,577 21,721 Goodwill and intangible assets, net 154,605 161,703 Other assets 85,702 84,154 Total assets $ 1,216,117 $ 1,230,095 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 78,524 $ 62,912 Accrued expenses 114,961 130,890 Current portion of operating lease liabilities 12,692 12,347 Current portion of long-term debt 8,526 8,572 Total current liabilities 214,703 214,721 Long-term debt 379,027 408,641 Operating lease liabilities 71,531 78,269 Deferred income taxes 31,639 33,832 Other long-term liabilities 68,052 68,685 Total liabilities 764,952 804,148 Commitments and contingencies (Note 15) Shareholders’ equity Preferred stock, par value $ 1.00 per share; 5,000 shares authorized; none issued or outstanding at June 30, 2024 and December 31, 2023 — — Common stock, par value $ 0.10 per share; 120,000 shares authorized; 58,303 and 58,112 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 5,830 5,811 Additional paid-in capital 254,666 252,909 Retained earnings 356,397 320,833 Accumulated other comprehensive loss – foreign currency translation ( 132,704 ) ( 119,590 ) Accumulated other comprehensive loss – pension liability ( 33,024 ) ( 34,016 ) Total shareholders’ equity 451,165 425,947 Total liabilities and shareholders’ equity $ 1,216,117 $ 1,230,095 See accompanying notes to consolidated condensed financial statements. 3 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2024 JULY 2, 2023 JUNE 30, 2024 JULY 2, 2023 Net sales $ 346,635 $ 329,582 $ 636,378 $ 625,374 Cost of sales 224,022 217,796 403,360 417,715 Gross profit 122,613 111,786 233,018 207,659 Selling, general and administrative expenses 84,462 85,522 170,421 171,776 Restructuring, asset impairment, and other gains, net — ( 2,644 ) — ( 2,502 ) Operating income 38,151 28,908 62,597 38,385 Interest expense 6,173 8,318 12,596 16,823 Other expense (income), net 832 ( 528 ) ( 144 ) 972 Income before income tax expense 31,146 21,118 50,145 20,590 Income tax expense 8,588 5,321 13,408 5,507 Net income $ 22,558 $ 15,797 $ 36,737 $ 15,083 Earnings per share – basic $ 0.39 $ 0.27 $ 0.63 $ 0.26 Earnings per share – diluted $ 0.38 $ 0.27 $ 0.63 $ 0.26 Common shares outstanding – basic 58,281 58,074 58,260 58,077 Common shares outstanding – diluted 58,692 58,170 58,703 58,180 See accompanying notes to consolidated condensed financial statements. 4 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2024 JULY 2, 2023 JUNE 30, 2024 JULY 2, 2023 Net income $ 22,558 $ 15,797 $ 36,737 $ 15,083 Other comprehensive (loss) income, after tax: Foreign currency translation adjustment ( 2,022 ) 1,361 ( 13,114 ) 6,291 Reclassification from accumulated other comprehensive loss – discontinued cash flow hedge — 300 — 599 Pension liability adjustment 534 ( 800 ) 992 ( 1,079 ) Other comprehensive (loss) income ( 1,488 ) 861 ( 12,122 ) 5,811 Comprehensive income $ 21,070 $ 16,658 $ 24,615 $ 20,894 See accompanying notes to consolidated condensed financial statements. 5 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) SIX MONTHS ENDED JUNE 30, 2024 JULY 2, 2023 OPERATING ACTIVITIES: Net income $ 36,737 $ 15,083 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 19,344 20,146 Share-based compensation expense 6,531 5,125 Gain on disposal of property, plant and equipment, net — ( 2,541 ) Deferred income taxes and other ( 4,805 ) ( 618 ) Amortization of acquired intangible assets 2,584 2,584 Working capital changes: Accounts receivable ( 18,907 ) 17,770 Inventories ( 5,661 ) 19,943 Prepaid expenses and other current assets ( 6,332 ) ( 3,611 ) Accounts payable and accrued expenses 4,667 ( 25,957 ) Cash provided by operating activities 34,158 47,924 INVESTING ACTIVITIES: Capital expenditures ( 13,607 ) ( 11,331 ) Proceeds from sale of property, plant and equipment 1,040 6,593 Insurance proceeds from property casualty loss 1,000 — Cash used in investing activities ( 11,567 ) ( 4,738 ) FINANCING ACTIVITIES: Repayments of long-term debt ( 46,930 ) ( 112,107 ) Borrowing of long-term debt 17,334 67,000 Tax withholding payments for share-based compensation ( 4,754 ) ( 1,487 ) Dividends paid ( 1,173 ) ( 1,161 ) Finance lease payments ( 1,437 ) ( 1,308 ) Cash used in financing activities ( 36,960 ) ( 49,063 ) Net cash used in operating, investing and financing activities ( 14,369 ) ( 5,877 ) Effect of exchange rate changes on cash ( 1,942 ) 1,248 CASH AND CASH EQUIVALENTS: Net decrease ( 16,311 ) ( 4,629 ) Balance, beginning of period 110,498 97,564 Balance, end of period $ 94,187 $ 92,935 See accompanying notes to consolidated condensed financial statements. 6 Table of Contents INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation References in this Quarterly Report on Form 10-Q to “Interface,” “the Company,” “we,” “our,” “ours” and “us” refer to Interface, Inc. and its subsidiaries or any of them, unless the context requires otherwise. As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Commission. The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature unless otherwise disclosed. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The December 31, 2023, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”). The six-month periods ended June 30, 2024 and July 2, 2023 both include 26 weeks. The three-month periods ended June 30, 2024 and July 2, 2023 both include 13 weeks. Risks and Uncertainties Global economic challenges, including the impacts of the Russia-Ukraine and Israel-Hamas wars, inflation, supply chain disruptions, and the slow macro environment in China could cause economic uncertainty and volatility. In connection with the Cyber Event discussed below, security breaches may expose us to fines and other liabilities to the extent sensitive data stored in our IT systems, including data related to customers, suppliers or employees, are misappropriated. The Company considered these impacts and subsequent general uncertainties and volatility in the global economy on the assumptions and estimates used herein. These uncertainties could result in a future material adverse effect to the amounts reported within the Company’s consolidated condensed financial statements if actual results differ from these estimates. Cybersecurity Event On November 20, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems (the “Cyber Event”). In response to this Cyber Event, we notified law enforcement and took steps to supplement existing security monitoring, including scanning and protective measures. The investigation of the Cyber Event by our forensic experts was completed during fiscal year 2023. Recently Issued Accounting Pronouncements – Not Yet Adopted In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “ Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures. ” This ASU requires public entities on an annual basis to disclose a rate reconciliation with explicit categories, as outlined in the ASU, and requires additional disclosures for reconciling items that meet certain quantitative thresholds. Other disclosures include disaggregation of income taxes paid, pre-tax income, and income tax expense. The new guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU to its income tax disclosures. In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ” This ASU requires additional disclosures in annual and interim periods for significant segment expenses included in the measure of segment profit provided to the chief operating decision maker (“CODM”). Disclosure of other segment items by reportable segment as well as a description of its composition is also required. The new guidance is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU to its segment disclosures. 7 Table of Contents NOTE 2 – REVENUE RECOGNITION For the three and six months ended June 30, 2024 and July 2, 2023, revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material was approximately 98 % of total revenue. The remaining 2 % of revenue was generated from the installation of carpet and other flooring-related material for both three-month and six-month periods ended June 30, 2024 and July 2, 2023. Disaggregation of Revenue For the three and six months ended June 30, 2024 and July 2, 2023, revenue from the Company’s customers is broken down by geography as follows: Three Months Ended Six Months Ended Geography June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Americas 62.0 % 61.1 % 60.5 % 59.2 % Europe 27.6 28.0 29.4 29.9 Asia-Pacific 10.4 10.9 10.1 10.9 Revenue from the Company’s customers in the Americas corresponds to the AMS reportable segment, and the EAAA reportable segment includes revenue from the Europe and Asia-Pacific geographies. See Note 10 entitled “Segment Information” for additional information. 8 Table of Contents NOTE 3 – INVENTORIES Inventories are summarized as follows: June 30, 2024 December 31, 2023 (in thousands) Finished goods $ 208,956 $ 201,821 Work-in-process 21,297 20,892 Raw materials 50,821 56,366 Inventories, net $ 281,074 $ 279,079 9 Table of Contents NOTE 4 – EARNINGS PER SHARE The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings. The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding for basic EPS as these awards are considered participating securities. Any unvested stock awards considered non-participating securities are included in diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following table shows the computation of basic and diluted EPS: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands, except per share data) Numerator: Net income $ 22,558 $ 15,797 $ 36,737 $ 15,083 Less: distributed and undistributed earnings available to participating securities ( 109 ) ( 189 ) ( 282 ) ( 207 ) Distributed and undistributed earnings available to common shareholders $ 22,449 $ 15,608 $ 36,455 $ 14,876 Denominator: Weighted average shares outstanding 58,001 57,381 57,812 57,279 Participating securities 280 693 448 798 Shares for basic EPS 58,281 58,074 58,260 58,077 Dilutive effect of non-participating securities 411 96 443 103 Shares for diluted EPS 58,692 58,170 58,703 58,180 Basic EPS $ 0.39 $ 0.27 $ 0.63 $ 0.26 Diluted EPS $ 0.38 $ 0.27 $ 0.63 $ 0.26 For the three and six months ended June 30, 2024, there were no securities excluded from the computation of diluted EPS that would have been antidilutive. For the three and six months ended July 2, 2023, 1,476,804 and 1,322,278 respectively, of non-participating securities were excluded from the computation of diluted EPS because the effect would have been antidilutive. 10 Table of Contents NOTE 5 – LONG-TERM DEBT Long-term debt consisted of the following: June 30, 2024 December 31, 2023 Outstanding Principal Interest Rate (1) Outstanding Principal Interest Rate (1) (in thousands) (in thousands) Syndicated Credit Facility: Revolving loan borrowings $ 7,334 7.96 % $ — — % Term loan borrowings 83,916 6.18 % 121,658 6.61 % Total borrowings under Syndicated Credit Facility 91,250 6.32 % 121,658 6.61 % 5.50% Senior Notes due 2028 300,000 5.50 % 300,000 5.50 % Total debt 391,250 421,658 Less: Unamortized debt issuance costs ( 3,697 ) ( 4,445 ) Total debt, net 387,553 417,213 Less: Current portion of long-term debt ( 8,526 ) ( 8,572 ) Total long-term debt, net $ 379,027 $ 408,641 (1) Represents the weighted average rate of interest for borrowings under the Syndicated Credit Facility and the stated rate of interest for the 5.50 % Senior Notes due 2028, without the effect of debt issuance costs. Syndicated Credit Facility The Company’s Syndicated Credit Facility (the “Facility”) provides to the Company U.S. denominated and multicurrency term loans and provides to the Company and certain of its subsidiaries a multicurrency revolving credit facility. Interest on base rate loans is charged at varying rates computed by applying a margin depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on SOFR-based and alternative currency loans is charged at varying rates computed by applying a margin over the applicable SOFR rate or alternative currency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company pays a commitment fee per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility. Fees for commercial letters of credit are computed as a percentage of the amount available to be drawn under such letters of credit. Fees for standby letters of credit are charged at varying rates computed by applying a margin 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. As of both June 30, 2024 and December 31, 2023, the Company had $ 1.6 million in letters of credit outstanding under the Facility. As of both June 30, 2024 and December 31, 2023, the carrying value of the Company’s borrowings under the Facility approximated its fair value as the Facility bears interest rates that are similar to existing market rates. The fair value of borrowings under the Facility is estimated using observable market rates and is considered Level 2 within the fair value hierarchy. Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter. The Company is in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future. 11 Table of Contents Senior Notes due 2028 The 5.50 % Senior Notes due 2028 (the “Senior Notes”) bear an interest rate at 5.50 % per annum and mature on December 1, 2028. Interest is paid semi-annually on June 1 and December 1 of each year. The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its Facility. As of June 30, 2024, the estimated fair value of the Senior Notes was $ 283.2 million, compared with a net carrying value recorded in the Company’s consolidated condensed balance sheet of $ 296.9 million ($ 300.0 million gross, excluding the impact of $ 3.1 million of unamortized debt issuance costs). The fair value of the Senior Notes is derived using quoted prices for similar instruments and is considered Level 2 within the fair value hierarchy. The Company is in compliance with all covenants under the indenture governing the Senior Notes and anticipates that it will remain in compliance with the covenants for the foreseeable future. Debt Issuance Costs Debt issuance costs associated with the Company’s Senior Notes and term loans under the Facility are reflected as a reduction of long-term debt in accordance with applicable accounting standards. As these fees are expensed over the life of the outstanding borrowing, the debt balance will increase by the same amount as the fees that are expensed. As of June 30, 2024 and December 31, 2023, the unamortized debt issuance costs recorded as a reduction of long-term debt were $ 3.7 million and $ 4.4 million, respectively. Debt issuance costs related to the issuance of revolving debt, which include underwriting, legal and other direct costs, net of accumulated amortization, were $ 1.2 million and $ 1.4 million as of June 30, 2024 and December 31, 2023, respectively. These amounts are included in other assets in the Company’s consolidated condensed balance sheets. The Company amortizes these costs over the life of the related debt. 12 Table of Contents NOTE 6 – SHAREHOLDERS’ EQUITY The following tables depict the activity in the accounts which make up shareholders’ equity for the six months ended June 30, 2024 and July 2, 2023: SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS FOREIGN CURRENCY TRANSLATION ADJUSTMENT PENSION LIABILITY TOTAL (in thousands, except per share data) Balance, at December 31, 2023 58,112 $ 5,811 $ 252,909 $ 320,833 $ ( 119,590 ) $ ( 34,016 ) $ 425,947 Net income — — — 14,179 — — 14,179 Issuances of stock related to restricted share units and performance shares 472 47 ( 47 ) — — — — Cash dividends declared, $ 0.01 per common share — — — ( 589 ) — — ( 589 ) Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 311 ) ( 31 ) ( 324 ) — — — ( 355 ) Foreign currency translation adjustment — — — — ( 11,092 ) — ( 11,092 ) Pension liability adjustment — — — — — 458 458 Balance, at March 31, 2024 58,273 $ 5,827 $ 252,538 $ 334,423 $ ( 130,682 ) $ ( 33,558 ) $ 428,548 Net income — — — 22,558 — — 22,558 Issuances of stock related to restricted share units and performance shares 4 — — — — — — Restricted stock issuances 58 6 941 — — — 947 Unrecognized compensation expense related to restricted stock awards — — ( 946 ) — — — ( 946 ) Cash dividends declared, $ 0.01 per common share — — — ( 584 ) — — ( 584 ) Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 32 ) ( 3 ) 2,133 — — — 2,130 Foreign currency translation adjustment — — — — ( 2,022 ) — ( 2,022 ) Pension liability adjustment — — — — — 534 534 Balance, at June 30, 2024 58,303 $ 5,830 $ 254,666 $ 356,397 $ ( 132,704 ) $ ( 33,024 ) $ 451,165 13 Table of Contents SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS FOREIGN CURRENCY TRANSLATION ADJUSTMENT PENSION LIABILITY CASH FLOW HEDGE TOTAL (in thousands, except per share data) Balance, at January 1, 2023 58,106 $ 5,811 $ 244,159 $ 278,639 $ ( 138,775 ) $ ( 27,548 ) $ ( 749 ) $ 361,537 Net loss — — — ( 714 ) — — — ( 714 ) Issuances of stock related to performance shares 79 8 ( 8 ) — — — — — Cash dividends declared, $ 0.01 per common share — — — ( 580 ) — — — ( 580 ) Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 132 ) ( 14 ) 1,850 — — — — 1,836 Foreign currency translation adjustment — — — — 4,930 — — 4,930 Pension liability adjustment — — — — — ( 279 ) — ( 279 ) Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 299 299 Balance, at April 2, 2023 58,053 $ 5,805 $ 246,001 $ 277,345 $ ( 133,845 ) $ ( 27,827 ) $ ( 450 ) $ 367,029 Net income — — — 15,797 — — — 15,797 Issuances of stock related to restricted share units and performance shares 5 1 ( 1 ) — — — — — Restricted stock issuances 102 10 697 — — — — 707 Unrecognized compensation expense related to restricted stock awards — — ( 708 ) — — — — ( 708 ) Cash dividends declared, $ 0.01 per common share — — — ( 581 ) — — — ( 581 ) Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 48 ) ( 5 ) 1,808 — — — — 1,803 Foreign currency translation adjustment — — — — 1,361 — — 1,361 Pension liability adjustment — — — — — ( 800 ) — ( 800 ) Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 300 300 Balance, at July 2, 2023 58,112 $ 5,811 $ 247,797 $ 292,561 $ ( 132,484 ) $ ( 28,627 ) $ ( 150 ) $ 384,908 14 Table of Contents Stock Incentive Plan The Company has share-based employee compensation plans, which are described more fully in Note 14 to the consolidated financial statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 . In May 2024, the shareholders of the Company approved the adoption of an amendment and restatement of the Interface, Inc. 2020 Omnibus Stock Incentive Plan (the “Amended and Restated Plan”). The aggregate number of shares of common stock that may be issued or transferred under the Amended and Restated Plan on or after the effective date of the plan is the sum of 3,200,000 shares not previously authorized for issuance under any plan, plus the number of shares remaining available for issuance under the original Interface, Inc. 2020 Omnibus Stock Incentive Plan (the “Original Plan”) but not subject to outstanding awards under the Original Plan immediately prior to the effective date of the Amended and Restated Plan, plus the number of shares remaining available for issuance pursuant to the outstanding awards under the Original Plan immediately prior to the effective date of the Amended and Restated Plan, including any shares that become available due to the forfeiture, termination or cancellation of such awards. No award may be granted after the tenth anniversary of the effective date of the Amended and Restated Plan. Restricted Stock Awards Compensation expense related to restricted stock grants was $ 1.4 million and $ 2.4 million for the six months ended June 30, 2024 and July 2, 2023, respectively. The Company has reduced its expense for any restricted stock forfeited during the period. The following table summarizes restricted stock outstanding as of June 30, 2024, as well as activity during the six months then ended: Restricted Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 691,600 $ 12.55 Granted 58,400 16.22 Vested ( 504,800 ) 12.31 Forfeited or canceled ( 1,200 ) 13.19 Outstanding at June 30, 2024 244,000 $ 13.91 As of June 30, 2024, the unrecognized total compensation cost related to unvested restricted stock was $ 1.3 million. That cost is expected to be recognized by the second quarter of 2025. Restricted Share Unit Awards Compensation expense related to the restricted share units was $ 1.8 million and $ 1.0 million for the six months ended June 30, 2024 and July 2, 2023, respectively. The Company has reduced its expense for any restricted share units forfeited during the period. The following table summarizes restricted share units outstanding as of June 30, 2024, as well as activity during the six months then ended: Restricted Share Units Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 583,400 $ 10.35 Granted 402,800 13.24 Vested ( 154,400 ) 10.78 Forfeited or canceled ( 5,700 ) 10.80 Outstanding at June 30, 2024 826,100 $ 11.68 As of June 30, 2024, the unrecognized total compensation cost related to unvested restricted share units was $ 7.6 million. That cost is expected to be recognized by the first quarter of 2027. 15 Table of Contents Performance Share Awards The following table summarizes the performance shares outstanding as of June 30, 2024, as well as the activity during the six months then ended: Performance Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 1,115,000 $ 12.36 Granted 402,800 13.24 Vested ( 322,300 ) 13.90 Forfeited or canceled ( 16,800 ) 12.65 Outstanding at June 30, 2024 1,178,700 $ 12.23 Compensation expense related to the performance shares was $ 3.3 million and $ 1.7 million for the six months ended June 30, 2024 and July 2, 2023, respectively. The Company has reduced its expense for any performance shares forfeited during the period. Unrecognized compensation expense related to these performance shares was approximately $ 7.7 million as of June 30, 2024. The amount and timing of future compensation expense will depend on the performance of the Company. The compensation expense related to these outstanding performance shares is expected to be recognized by the first quarter of 2027. The tax benefit recognized with respect to restricted stock, restricted share units and performance shares was approximately $ 1.2 million for the six months ended June 30, 2024. 16 Table of Contents NOTE 7 – LEASES The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to the Company’s leases as of June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases (in thousands) Operating lease right-of-use assets $ 80,696 $ 87,519 Current portion of operating lease liabilities $ 12,692 $ 12,347 Operating lease liabilities 71,531 78,269 Total operating lease liabilities $ 84,223 $ 90,616 Property, plant and equipment, net $ 7,257 $ 7,236 Accrued expenses $ 2,556 $ 2,587 Other long-term liabilities 5,081 5,035 Total finance lease liabilities $ 7,637 $ 7,622 As of June 30, 2024, there were no significant leases that had not commenced. Lease Costs Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Finance lease cost: Amortization of right-of-use assets $ 749 $ 705 $ 1,525 $ 1,360 Interest on lease liabilities 110 85 209 145 Operating lease cost 4,822 4,698 9,811 9,401 Short-term lease cost 199 391 396 747 Variable lease cost 645 608 1,335 1,341 Total lease cost $ 6,525 $ 6,487 $ 13,276 $ 12,994 17 Table of Contents Other Supplemental Information Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 105 $ 55 $ 201 $ 107 Operating cash flows from operating leases 4,323 4,440 8,420 8,641 Financing cash flows from finance leases 721 665 1,437 1,308 Right-of-use assets obtained in exchange for new finance lease liabilities 1,191 479 1,581 1,036 Right-of-use assets obtained in exchange for new operating lease liabilities 634 2,842 899 3,963 Lease Term and Discount Rate The table below presents the weighted average remaining lease terms and discount rates for finance and operating leases as of June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 Weighted-average remaining lease term – finance leases (in years) 3.61 3.70 Weighted-average remaining lease term – operating leases (in years) 7.92 8.29 Weighted-average discount rate – finance leases 6.03 % 5.51 % Weighted-average discount rate – operating leases 6.30 % 6.25 % Maturity Analysis A maturity analysis of lease payments under non-cancellable leases is presented as follows: Fiscal Year Operating Leases Finance Leases (in thousands) 2024 (excluding the six months ended June 30, 2024) $ 8,589 $ 1,544 2025 16,410 2,505 2026 16,256 1,976 2027 13,283 1,433 2028 10,774 763 Thereafter 42,623 328 Total future minimum lease payments (undiscounted) 107,935 8,549 Less: Present value discount ( 23,712 ) ( 912 ) Total lease liabilities $ 84,223 $ 7,637 18 Table of Contents NOTE 8 – EMPLOYEE BENEFIT PLANS During the three and six months ended June 30, 2024, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.6 million and $ 1.3 million, respectively. During the three and six months ended July 2, 2023, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.7 million and $ 1.3 million, respectively. The following tables provide the components of net periodic benefit cost for the three and six months ended June 30, 2024 and July 2, 2023: Three Months Ended Six Months Ended Defined Benefit Retirement Plans (Europe) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Interest cost $ 1,702 $ 1,778 $ 3,412 $ 3,513 Expected return on plan assets ( 1,955 ) ( 2,015 ) ( 3,921 ) ( 3,979 ) Amortization of prior service cost 44 30 89 59 Amortization of net actuarial losses 267 228 536 451 Net periodic benefit cost $ 58 $ 21 $ 116 $ 44 Three Months Ended Six Months Ended Salary Continuation Plan June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Interest cost $ 266 $ 284 $ 532 $ 567 Amortization of net actuarial losses 60 48 120 97 Net periodic benefit cost $ 326 $ 332 $ 652 $ 664 Three Months Ended Six Months Ended nora Defined Benefit Plan June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Service cost $ 124 $ 115 $ 250 $ 229 Interest cost 262 275 526 547 Amortization of net actuarial gains — ( 111 ) — ( 220 ) Net periodic benefit cost $ 386 $ 279 $ 776 $ 556 In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income in the consolidated condensed statements of operations, while all other components of net periodic benefit costs are presented within other expense (income), net, in the consolidated condensed statements of operations. 19 Table of Contents NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS The ending balance and the change in the carrying amount of goodwill for the six months ended June 30, 2024 is as follows: Goodwill (1) (in thousands) Balance, at December 31, 2023 $ 105,448 Foreign currency translation (2) ( 2,951 ) Balance, at June 30, 2024 $ 102,497 (1) The goodwill balance is allocated entirely to the AMS reportable segment. (2) A portion of the goodwill balance is comprised of goodwill denominated in foreign currency attributable to the nora acquisition. The net carrying value of intangible assets other than goodwill was $ 52.1 million and $ 56.3 million at June 30, 2024 and December 31, 2023, respectively. 20 Table of Contents NOTE 10 – SEGMENT INFORMATION The Company determines that an operating segment exists if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has operating results that are regularly reviewed by the chief operating decision maker (“CODM”) and (iii) has discrete financial information. Additionally, accounting standards require the utilization of a “management approach” to report the financial results of operating segments, which is based on information used by the CODM to assess performance and make operating and resource allocation decisions. The Company determined that it has two operating segments organized by geographical area – namely (a) Americas (“AMS”) and (b) Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment includes the United States, Canada and Latin America geographic areas. Pursuant to the management approach discussed above, the Company’s CODM, our chief executive officer, evaluates performance at the AMS and EAAA operating segment levels and makes operating and resource allocation decisions based on segment adjusted operating income (“AOI”), which includes allocations of corporate selling, general and administrative (“SG&A”) expenses and allocations of global support SG&A as discussed below. AOI excludes: nora purchase accounting amortization; Cyber Event impact; property casualty loss; and restructuring, asset impairment, severance, and other, net. Intersegment revenues for the three and six months ended June 30, 2024, were $ 24.5 million and $ 41.3 million, respectively, and intersegment revenues for the three and six months ended July 2, 2023, were $ 24.7 million and $ 47.3 million, respectively. Intersegment revenues are eliminated from net sales presented below since these amounts are not included in the information provided to the CODM. The Company has determined that it has two reportable segments – AMS and EAAA, as each operating segment meets the quantitative thresholds defined in the accounting guidance. During the first quarter of 2024, the Company implemented a cost center realignment initiative to centralize certain global/shared functions. For the three and six months ended June 30, 2024, SG&A expenses for these global support functions were allocated to AOI for each reportable segment consistent with the allocation methodology used to allocate corporate overhead in prior periods. Prior year AOI amounts below were not recast as there was no material impact to the measure of segment profit for each reportable segment. There were no changes to the composition of the Company’s operating or reportable segments. Segment information for the three and six months ended June 30, 2024 and July 2, 2023 is presented in the following table: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) Net sales AMS $ 215,012 $ 201,281 $ 384,927 $ 370,522 EAAA 131,623 128,301 251,451 254,852 Total net sales $ 346,635 $ 329,582 $ 636,378 $ 625,374 Segment AOI AMS $ 26,947 $ 24,034 $ 45,027 $ 35,303 EAAA 12,658 3,827 20,103 7,756 Depreciation and amortization AMS $ 4,446 $ 4,424 $ 8,799 $ 8,817 EAAA 5,282 5,731 10,545 11,329 Total depreciation and amortization $ 9,728 $ 10,155 $ 19,344 $ 20,146 21 Table of Contents A reconciliation of the Company’s total operating segment assets to the corresponding consolidated amounts follows: June 30, 2024 December 31, 2023 (in thousands) Assets AMS $ 581,835 $ 627,782 EAAA 618,901 630,939 Total segment assets 1,200,736 1,258,721 Corporate assets 109,939 108,673 Eliminations ( 94,558 ) ( 137,299 ) Total reported assets $ 1,216,117 $ 1,230,095 Reconciliations of operating income to income before income tax expense and segment AOI are presented as follows: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (in thousands) AMS operating income $ 26,804 $ 24,752 $ 44,999 $ 33,467 EAAA operating income 11,347 4,156 17,598 4,918 Consolidated operating income 38,151 28,908 62,597 38,385 Interest expense 6,173 8,318 12,596 16,823 Other expense (income), net 832 ( 528 ) ( 144 ) 972 Income before income tax expense $ 31,146 $ 21,118 $ 50,145 $ 20,590 Three Months Ended June 30, 2024 Three Months Ended July 2, 2023 AMS EAAA AMS EAAA (in thousands) Operating income $ 26,804 $ 11,347 $ 24,752 $ 4,156 Purchase accounting amortization — 1,287 — 1,301 Cyber Event impact 21 14 264 173 Property casualty loss (1) — — ( 1,300 ) — Restructuring, asset impairment, severance, and other, net 122 10 318 ( 1,803 ) AOI $ 26,947 $ 12,658 $ 24,034 $ 3,827 (1) Represents insurance recovery of loss recognized in the first quarter of 2023. Six Months Ended June 30, 2024 Six Months Ended July 2, 2023 AMS EAAA AMS EAAA (in thousands) Operating income $ 44,999 $ 17,598 $ 33,467 $ 4,918 Purchase accounting amortization — 2,584 — 2,584 Cyber Event impact ( 225 ) ( 156 ) 492 373 Restructuring, asset impairment, severance, and other, net 253 77 1,344 ( 119 ) AOI $ 45,027 $ 20,103 $ 35,303 $ 7,756 22 Table of Contents NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information for the six months ended June 30, 2024 and July 2, 2023 is presented in the following table: Six Months Ended June 30, 2024 July 2, 2023 (in thousands) Cash paid for interest $ 11,977 $ 14,692 Cash paid for income taxes, net of refunds 16,014 10,101 See Note 7 entitled “Leases” for additional supplemental disclosures related to finance and operating leases. 23 Table of Contents NOTE 12 – INCOME TAXES The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate (“AETR”) and records any changes affecting the estimated AETR in the interim period in which the change occurs, including discrete tax items. During the six months ended June 30, 2024, the Company recorded a total income tax provision of $ 13.4 million on pre-tax income of $ 50.1 million resulting in an effective tax rate of 26.7 %, as compared to a total income tax provision of $ 5.5 million on pre-tax income of $ 20.6 million resulting in an effective tax rate of 26.7 % during the six months ended July 2, 2023. Although the year-over-year change in rate was flat, the effective tax rate for the period ended June 30, 2024 was favorably impacted by an increase in tax benefits related to share-based compensation and favorable changes related to the limitation on the deduction of business interest expense under Internal Revenue Code section 163(j), which were offset by a decrease in favorable tax benefits related to the repatriation of previously taxed foreign earnings realized during the six months ended July 2, 2023. On December 20, 2021, the Organization for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15 %. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. For fiscal year 2024, we expect to meet the Transitional Country-by-Country (CbCR) Safe Harbor rules for most if not all jurisdictions and do not expect these provisions to have a material impact on the Company’s financial statements. We will continue to closely monitor ongoing developments and evaluate any potential impact on future periods. In the first six months of 2024, the Company increased its liability for unrecognized tax benefits by $ 0.4 million. As of June 30, 2024, the Company had accrued approximately $ 5.3 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of June 30, 2024, reflects a reduction of $ 2.8 million of these unrecognized tax benefits. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. While it is reasonably possible that some of the unrecognized tax benefits will be recognized within the next 12 months, the Company does not expect the recognition of such amounts will have a material impact on the Company’s financial results. 24 Table of Contents NOTE 13 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS Amounts reclassified out of accumulated other comprehensive loss (“AOCL”), before tax, to the consolidated condensed statements of operations during the three and six months ended June 30, 2024 and July 2, 2023 are reflected in the tables below: Three Months Ended Statement of Operations Location June 30, 2024 July 2, 2023 (in thousands) Interest rate swap contracts loss Interest expense $ — $ ( 393 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense (income), net ( 371 ) ( 195 ) Total loss reclassified from AOCL $ ( 371 ) $ ( 588 ) Six Months Ended Statement of Operations Location June 30, 2024 July 2, 2023 (in thousands) Interest rate swap contracts loss Interest expense $ — $ ( 786 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense (income), net ( 745 ) ( 387 ) Total loss reclassified from AOCL $ ( 745 ) $ ( 1,173 ) 25 Table of Contents NOTE 14 – ASSETS DISPOSED During the second quarter of 2023, pursuant to a previously announced plan of reorganization, the Company completed the sale of its Thailand manufacturing facility for a selling price of $ 6.6 million and recognized a gain of $ 2.7 million. The gain is recorded in restructuring, asset impairment, and other gains, net, in the consolidated condensed statements of operations and is attributable to the EAAA reportable segment. The Company determined that the Thailand facility sale did not meet the criteria for classification as discontinued operations. 26 Table of Contents NOTE 15 – COMMITMENTS AND CONTINGENCIES From time to time, we are a party to legal proceedings, whether arising in the ordinary course of business or otherwise. See disclosure under the heading “Lawsuit by Former CEO in Connection with Termination” set forth in Note 18 to the consolidated financial statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 . 27 Table of Contents