INTERFACE INC 10-Q

ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except par values) SEPTEMBER 29, 2024 DECEMBER 31, 2023 (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 115,601 $ 110,498 Accounts receivable, net 173,859 163,386 Inventories, net 283,096 279,079 Prepaid expenses and other current assets 35,605 30,895 Total current assets 608,161 583,858 Property, plant and equipment, net 284,845 291,140 Operating lease right-of-use assets 81,716 87,519 Deferred tax asset 21,604 21,721 Goodwill and intangible assets, net 159,428 161,703 Other assets 87,510 84,154 Total assets $ 1,243,264 $ 1,230,095 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 78,279 $ 62,912 Accrued expenses 136,626 130,890 Current portion of operating lease liabilities 12,888 12,347 Current portion of long-term debt 8,593 8,572 Total current liabilities 236,386 214,721 Long-term debt 329,347 408,641 Operating lease liabilities 72,861 78,269 Deferred income taxes 32,945 33,832 Other long-term liabilities 70,162 68,685 Total liabilities 741,701 804,148 Commitments and contingencies (Note 15) Shareholders’ equity Preferred stock, par value $ 1.00 per share; 5,000 shares authorized; none issued or outstanding at September 29, 2024 and December 31, 2023 — — Common stock, par value $ 0.10 per share; 120,000 shares authorized; 58,304 and 58,112 shares issued and outstanding at September 29, 2024 and December 31, 2023, respectively 5,830 5,811 Additional paid-in capital 257,282 252,909 Retained earnings 384,258 320,833 Accumulated other comprehensive loss – foreign currency translation ( 111,573 ) ( 119,590 ) Accumulated other comprehensive loss – pension liability ( 34,234 ) ( 34,016 ) Total shareholders’ equity 501,563 425,947 Total liabilities and shareholders’ equity $ 1,243,264 $ 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 NINE MONTHS ENDED SEPTEMBER 29, 2024 OCTOBER 1, 2023 SEPTEMBER 29, 2024 OCTOBER 1, 2023 Net sales $ 344,270 $ 311,006 $ 980,648 $ 936,380 Cost of sales 216,645 200,748 620,005 618,463 Gross profit 127,625 110,258 360,643 317,917 Selling, general and administrative expenses 85,450 79,273 255,871 251,049 Restructuring, asset impairment, and other gains, net — — — ( 2,502 ) Operating income 42,175 30,985 104,772 69,370 Interest expense 5,721 8,163 18,317 24,986 Other expense, net 381 6,702 237 7,674 Income before income tax expense 36,073 16,120 86,218 36,710 Income tax expense 7,630 6,241 21,038 11,748 Net income $ 28,443 $ 9,879 $ 65,180 $ 24,962 Earnings per share – basic $ 0.49 $ 0.17 $ 1.12 $ 0.43 Earnings per share – diluted $ 0.48 $ 0.17 $ 1.11 $ 0.43 Common shares outstanding – basic 58,305 58,107 58,275 58,087 Common shares outstanding – diluted 58,871 58,342 58,754 58,233 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 NINE MONTHS ENDED SEPTEMBER 29, 2024 OCTOBER 1, 2023 SEPTEMBER 29, 2024 OCTOBER 1, 2023 Net income $ 28,443 $ 9,879 $ 65,180 $ 24,962 Other comprehensive income (loss), after tax: Foreign currency translation adjustment 21,131 ( 9,176 ) 8,017 ( 2,885 ) Pension liability adjustment ( 1,210 ) 202 ( 218 ) ( 877 ) Reclassification from accumulated other comprehensive loss – discontinued cash flow hedge — 150 — 749 Other comprehensive income (loss) 19,921 ( 8,824 ) 7,799 ( 3,013 ) Comprehensive income $ 48,364 $ 1,055 $ 72,979 $ 21,949 See accompanying notes to consolidated condensed financial statements. 5 Table of Contents INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) NINE MONTHS ENDED SEPTEMBER 29, 2024 OCTOBER 1, 2023 OPERATING ACTIVITIES: Net income $ 65,180 $ 24,962 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 29,246 30,591 Share-based compensation expense 9,160 7,334 Loss (gain) on disposal of property, plant and equipment, net 139 ( 2,531 ) Loss on foreign subsidiary liquidation — 6,221 Deferred income taxes ( 1,160 ) 438 Other ( 2,318 ) ( 1,109 ) Amortization of acquired intangible assets 3,895 3,886 Working capital changes: Accounts receivable ( 10,656 ) 37,396 Inventories ( 2,395 ) 14,135 Prepaid expenses and other current assets ( 4,583 ) ( 2,842 ) Accounts payable and accrued expenses 23,879 ( 4,264 ) Cash provided by operating activities 110,387 114,217 INVESTING ACTIVITIES: Capital expenditures ( 20,108 ) ( 17,238 ) Proceeds from sale of property, plant and equipment 1,040 6,593 Insurance proceeds from property casualty loss 2,374 — Cash used in investing activities ( 16,694 ) ( 10,645 ) FINANCING ACTIVITIES: Repayments of long-term debt ( 114,241 ) ( 149,738 ) Borrowing of long-term debt 33,381 74,000 Tax withholding payments for share-based compensation ( 4,770 ) ( 1,514 ) Dividends paid ( 1,755 ) ( 1,742 ) Finance lease payments ( 2,160 ) ( 1,853 ) Cash used in financing activities ( 89,545 ) ( 80,847 ) Net cash provided by operating, investing and financing activities 4,148 22,725 Effect of exchange rate changes on cash 955 ( 656 ) CASH AND CASH EQUIVALENTS: Net increase 5,103 22,069 Balance, beginning of period 110,498 97,564 Balance, end of period $ 115,601 $ 119,633 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 nine-month periods ended September 29, 2024 and October 1, 2023 both include 39 weeks. The three-month periods ended September 29, 2024 and October 1, 2023 both include 13 weeks. Risks and Uncertainties Global economic challenges, including the impacts of the Russia-Ukraine and Israel-Hamas wars or other conflicts around the globe, supply chain disruptions, and slow macro environments in certain geographical regions 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. Reclassifications Certain reclassifications to previously reported information have been made in the consolidated condensed statements of cash flows to conform to the current period presentation. The previously reported line item “deferred income taxes and other” was separated into two line items in the current period presentation of the consolidated condensed statements of cash flows to provide additional information. These reclassifications had no effect on cash provided by operating activities as previously reported. 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. We are currently assessing the updated guidance; however, it is not expected to have a material impact to our consolidated financial statements. 7 Table of Contents 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 has completed its evaluation of ASU 2023-07 and has determined that the new guidance will enhance our segment disclosures, but will not have a material impact to our consolidated financial statements. 8 Table of Contents NOTE 2 – REVENUE RECOGNITION The Company generates revenue from sales of modular carpet, resilient flooring, rubber flooring, and other flooring-related material, and from the installation of carpet and other flooring-related material. A summary of these revenue streams, as a percentage of net sales, for the three and nine months ended September 29, 2024 and October 1, 2023 is as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Revenue from the sale of flooring material 96 % 98 % 97 % 98 % Revenue from installation of flooring material 4 2 3 2 Disaggregation of Revenue For the three and nine months ended September 29, 2024 and October 1, 2023, revenue from the Company’s customers is broken down by geography as follows: Three Months Ended Nine Months Ended Geography September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 Americas 61.0 % 57.3 % 60.7 % 58.6 % Europe 28.2 30.3 28.9 30.0 Asia-Pacific 10.8 12.4 10.4 11.4 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. 9 Table of Contents NOTE 3 – INVENTORIES Inventories are summarized as follows: September 29, 2024 December 31, 2023 (in thousands) Finished goods $ 207,740 $ 201,821 Work-in-process 22,853 20,892 Raw materials 52,503 56,366 Inventories, net $ 283,096 $ 279,079 10 Table of Contents NOTE 4 – EARNINGS PER SHARE The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings. The Company includes all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding for basic EPS as these awards are considered participating securities. Any unvested stock awards considered non-participating securities are included in diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following table shows the computation of basic and diluted EPS: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands, except per share data) Numerator: Net income $ 28,443 $ 9,879 $ 65,180 $ 24,962 Less: distributed and undistributed earnings available to participating securities ( 119 ) ( 117 ) ( 425 ) ( 327 ) Distributed and undistributed earnings available to common shareholders $ 28,324 $ 9,762 $ 64,755 $ 24,635 Denominator: Weighted average shares outstanding 58,061 57,420 57,895 57,326 Participating securities 244 687 380 761 Shares for basic EPS 58,305 58,107 58,275 58,087 Dilutive effect of non-participating securities 566 235 479 146 Shares for diluted EPS 58,871 58,342 58,754 58,233 Basic EPS $ 0.49 $ 0.17 $ 1.12 $ 0.43 Diluted EPS $ 0.48 $ 0.17 $ 1.11 $ 0.43 For both the three and nine months ended September 29, 2024, there were no securities excluded from the computation of diluted EPS that would have been antidilutive. For both the three and nine months ended October 1, 2023, 855,785 of non-participating securities were excluded from the computation of diluted EPS because the effect would have been antidilutive. 11 Table of Contents NOTE 5 – LONG-TERM DEBT Long-term debt consisted of the following: September 29, 2024 December 31, 2023 Outstanding Principal Interest Rate (1) Outstanding Principal Interest Rate (1) (in thousands) (in thousands) Syndicated Credit Facility (2) : Term loan borrowings $ 41,167 5.32 % $ 121,658 6.61 % 5.50% Senior Notes due 2028 300,000 5.50 % 300,000 5.50 % Total debt 341,167 421,658 Less: Unamortized debt issuance costs ( 3,227 ) ( 4,445 ) Total debt, net 337,940 417,213 Less: Current portion of long-term debt ( 8,593 ) ( 8,572 ) Total long-term debt, net $ 329,347 $ 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. (2) The Syndicated Credit Facility also includes a multicurrency revolving loan facility up to $ 300.0 million. There were no revolving loan borrowings outstanding as of September 29, 2024 or December 31, 2023. 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 September 29, 2024 and December 31, 2023, the Company had $ 0.7 million and $ 1.6 million, respectively, in letters of credit outstanding under the Facility. As of both September 29, 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. 12 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 September 29, 2024, the estimated fair value of the Senior Notes was $ 294.8 million, compared with a net carrying value recorded in the Company’s consolidated condensed balance sheet of $ 297.1 million ($ 300.0 million gross, excluding the impact of $ 2.9 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. 13 Table of Contents NOTE 6 – SHAREHOLDERS’ EQUITY The following tables depict the activity in the accounts which make up shareholders’ equity for the nine months ended September 29, 2024 and October 1, 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 Net income — — — 28,443 — — 28,443 Issuances of stock related to restricted share units 3 — — — — — — Cash dividends declared, $ 0.01 per common share — — — ( 582 ) — — ( 582 ) Compensation expense related to share-based plans, net of forfeitures and shares received for tax withholdings ( 2 ) — 2,616 — — — 2,616 Foreign currency translation adjustment — — — — 21,131 — 21,131 Pension liability adjustment — — — — — ( 1,210 ) ( 1,210 ) Balance, at September 29, 2024 58,304 $ 5,830 $ 257,282 $ 384,258 $ ( 111,573 ) $ ( 34,234 ) $ 501,563 14 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 Net income — — — 9,879 — — — 9,879 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 ( 5 ) — 2,182 — — — — 2,182 Foreign currency translation adjustment — — — — ( 9,176 ) — — ( 9,176 ) Pension liability adjustment — — — — — 202 — 202 Reclassification out of accumulated other comprehensive loss – discontinued cash flow hedge — — — — — — 150 150 Balance, at October 1, 2023 58,107 $ 5,811 $ 249,979 $ 301,859 $ ( 141,660 ) $ ( 28,425 ) $ — $ 387,564 15 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 $ 1.9 million and $ 3.4 million for the nine months ended September 29, 2024 and October 1, 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 September 29, 2024, as well as activity during the nine 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 ( 2,900 ) 13.19 Outstanding at September 29, 2024 242,300 $ 13.92 As of September 29, 2024, the unrecognized total compensation cost related to unvested restricted stock was $ 0.8 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 $ 2.6 million and $ 1.5 million for the nine months ended September 29, 2024 and October 1, 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 September 29, 2024, as well as activity during the nine 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 ( 157,200 ) 10.77 Forfeited or canceled ( 10,200 ) 11.41 Outstanding at September 29, 2024 818,800 $ 11.68 As of September 29, 2024, the unrecognized total compensation cost related to unvested restricted share units was $ 6.7 million. That cost is expected to be recognized by the first quarter of 2027. 16 Table of Contents Performance Share Awards The following table summarizes the performance shares outstanding as of September 29, 2024, as well as the activity during the nine 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 ( 23,900 ) 12.53 Outstanding at September 29, 2024 1,171,600 $ 12.23 Compensation expense related to the performance shares was $ 4.7 million and $ 2.4 million for the nine months ended September 29, 2024 and October 1, 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 $ 6.3 million as of September 29, 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 $ 1.4 million for the nine months ended September 29, 2024. 17 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 September 29, 2024 and December 31, 2023: September 29, 2024 December 31, 2023 Balance Sheet Location Operating Leases Finance Leases Operating Leases Finance Leases (in thousands) Operating lease right-of-use assets $ 81,716 $ 87,519 Current portion of operating lease liabilities $ 12,888 $ 12,347 Operating lease liabilities 72,861 78,269 Total operating lease liabilities $ 85,749 $ 90,616 Property, plant and equipment, net $ 7,526 $ 7,236 Accrued expenses $ 2,577 $ 2,587 Other long-term liabilities 5,335 5,035 Total finance lease liabilities $ 7,912 $ 7,622 As of September 29, 2024, there were no significant leases that had not commenced. Lease Costs Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Finance lease cost: Amortization of right-of-use assets $ 766 $ 696 $ 2,291 $ 2,056 Interest on lease liabilities 119 79 328 224 Operating lease cost 4,824 4,740 14,635 14,141 Short-term lease cost 241 187 637 934 Variable lease cost 805 583 2,140 1,924 Total lease cost $ 6,755 $ 6,285 $ 20,031 $ 19,279 18 Table of Contents Other Supplemental Information Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 115 $ 60 $ 316 $ 167 Operating cash flows from operating leases 4,377 4,130 12,797 12,771 Financing cash flows from finance leases 723 545 2,160 1,853 Right-of-use assets obtained in exchange for new finance lease liabilities 780 1,414 2,361 2,450 Right-of-use assets obtained in exchange for new operating lease liabilities 2,318 236 3,217 4,199 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 September 29, 2024 and December 31, 2023: September 29, 2024 December 31, 2023 Weighted-average remaining lease term – finance leases (in years) 3.66 3.70 Weighted-average remaining lease term – operating leases (in years) 7.94 8.29 Weighted-average discount rate – finance leases 6.31 % 5.51 % Weighted-average discount rate – operating leases 6.37 % 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 nine months ended September 29, 2024) $ 4,423 $ 821 2025 16,995 2,754 2026 16,839 2,218 2027 13,954 1,654 2028 11,459 946 Thereafter 46,668 516 Total future minimum lease payments (undiscounted) 110,338 8,909 Less: Present value discount ( 24,589 ) ( 997 ) Total lease liabilities $ 85,749 $ 7,912 19 Table of Contents NOTE 8 – EMPLOYEE BENEFIT PLANS During the three and nine months ended September 29, 2024, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.8 million and $ 2.1 million, respectively. During the three and nine months ended October 1, 2023, the Company recorded multi-employer pension expense related to multi-employer contributions of $ 0.7 million and $ 2.0 million, respectively. The following tables provide the components of net periodic benefit cost for the three and nine months ended September 29, 2024 and October 1, 2023: Three Months Ended Nine Months Ended Defined Benefit Retirement Plans (Europe) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Interest cost $ 1,746 $ 1,791 $ 5,158 $ 5,304 Expected return on plan assets ( 2,009 ) ( 2,030 ) ( 5,930 ) ( 6,009 ) Amortization of prior service cost 46 30 135 89 Amortization of net actuarial losses 274 229 810 680 Net periodic benefit cost $ 57 $ 20 $ 173 $ 64 Three Months Ended Nine Months Ended Salary Continuation Plan September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Interest cost $ 267 $ 284 $ 799 $ 851 Amortization of net actuarial losses 59 49 179 146 Net periodic benefit cost $ 326 $ 333 $ 978 $ 997 Three Months Ended Nine Months Ended nora Defined Benefit Plan September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Service cost $ 126 $ 116 $ 376 $ 345 Interest cost 268 275 794 822 Amortization of net actuarial gains — ( 110 ) — ( 330 ) Net periodic benefit cost $ 394 $ 281 $ 1,170 $ 837 In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within operating income in the consolidated condensed statements of operations, while all other components of net periodic benefit costs are presented within other expense, net, in the consolidated condensed statements of operations. 20 Table of Contents NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS The ending balance and the change in the carrying amount of goodwill for the nine months ended September 29, 2024 is as follows: Goodwill (1) (in thousands) Balance, at December 31, 2023 $ 105,448 Foreign currency translation (2) 1,132 Balance, at September 29, 2024 $ 106,580 (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 $ 52.8 million and $ 56.3 million at September 29, 2024 and December 31, 2023, respectively. 21 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 nine months ended September 29, 2024, were $ 19.1 million and $ 60.4 million, respectively, and intersegment revenues for the three and nine months ended October 1, 2023, were $ 25.0 million and $ 72.3 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 nine months ended September 29, 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 nine months ended September 29, 2024 and October 1, 2023 is presented in the following table: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) Net sales AMS $ 210,155 $ 178,194 $ 595,082 $ 548,716 EAAA 134,115 132,812 385,566 387,664 Total net sales $ 344,270 $ 311,006 $ 980,648 $ 936,380 Segment AOI AMS $ 32,187 $ 23,318 $ 77,214 $ 58,621 EAAA 11,299 9,049 31,402 16,805 Depreciation and amortization AMS $ 4,453 $ 4,640 $ 13,252 $ 13,457 EAAA 5,449 5,805 15,994 17,134 Total depreciation and amortization $ 9,902 $ 10,445 $ 29,246 $ 30,591 22 Table of Contents A reconciliation of the Company’s total operating segment assets to the corresponding consolidated amounts follows: September 29, 2024 December 31, 2023 (in thousands) Assets AMS $ 628,090 $ 627,782 EAAA 640,638 630,939 Total segment assets 1,268,728 1,258,721 Corporate assets 112,674 108,673 Eliminations ( 138,138 ) ( 137,299 ) Total reported assets $ 1,243,264 $ 1,230,095 Reconciliations of operating income to income before income tax expense and segment AOI are presented as follows: Three Months Ended Nine Months Ended September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023 (in thousands) AMS operating income $ 31,878 $ 23,530 $ 76,877 $ 56,997 EAAA operating income 10,297 7,455 27,895 12,373 Consolidated operating income 42,175 30,985 104,772 69,370 Interest expense 5,721 8,163 18,317 24,986 Other expense, net 381 6,702 237 7,674 Income before income tax expense $ 36,073 $ 16,120 $ 86,218 $ 36,710 Three Months Ended September 29, 2024 Three Months Ended October 1, 2023 AMS EAAA AMS EAAA (in thousands) Operating income $ 31,878 $ 10,297 $ 23,530 $ 7,455 Purchase accounting amortization — 1,311 — 1,302 Cyber Event impact — — 62 42 Restructuring, asset impairment, severance, and other, net 309 ( 309 ) ( 274 ) 250 AOI $ 32,187 $ 11,299 $ 23,318 $ 9,049 Nine Months Ended September 29, 2024 Nine Months Ended October 1, 2023 AMS EAAA AMS EAAA (in thousands) Operating income $ 76,877 $ 27,895 $ 56,997 $ 12,373 Purchase accounting amortization — 3,895 — 3,886 Cyber Event impact ( 225 ) ( 156 ) 554 415 Restructuring, asset impairment, severance, and other, net 562 ( 232 ) 1,070 131 AOI $ 77,214 $ 31,402 $ 58,621 $ 16,805 23 Table of Contents NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information for the nine months ended September 29, 2024 and October 1, 2023 is presented in the following table: Nine Months Ended September 29, 2024 October 1, 2023 (in thousands) Cash paid for interest $ 13,659 $ 17,603 Cash paid for income taxes, net of refunds 25,905 17,588 See Note 7 entitled “Leases” for additional supplemental disclosures related to finance and operating leases. 24 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 nine months ended September 29, 2024, the Company recorded a total income tax provision of $ 21.0 million on pre-tax income of $ 86.2 million resulting in an effective tax rate of 24.4 %, as compared to a total income tax provision of $ 11.7 million on pre-tax income of $ 36.7 million resulting in an effective tax rate of 32.0 % during the nine months ended October 1, 2023. The decrease in the effective tax rate for the period ended September 29, 2024, as compared to the period ended October 1, 2023, was primarily due to the release of the valuation allowance on interest expense carryforwards, favorable changes related to the limitation on the deduction of business interest expense under Internal Revenue Code section 163(j), an increase in tax benefits related to share-based compensation, and prior period non-deductible charges related to the substantial liquidation of subsidiaries in Brazil and Russia that occurred during the nine months ended October 1, 2023. These favorable changes were partially offset by a decrease in U.S. tax benefits related to foreign tax credit utilization, foreign derived intangible income, and the repatriation of previously taxed foreign earnings realized during the nine months ended October 1, 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 nine months of 2024, the Company increased its liability for unrecognized tax benefits by $ 0.4 million. As of September 29, 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 September 29, 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. 25 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 nine months ended September 29, 2024 and October 1, 2023 are reflected in the tables below: Three Months Ended Statement of Operations Location September 29, 2024 October 1, 2023 (in thousands) Loss on foreign subsidiary liquidation (1) Other expense, net $ — $ ( 6,221 ) Interest rate swap contracts loss Interest expense — ( 196 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense, net ( 379 ) ( 198 ) Total loss reclassified from AOCL $ ( 379 ) $ ( 6,615 ) Nine Months Ended Statement of Operations Location September 29, 2024 October 1, 2023 (in thousands) Loss on foreign subsidiary liquidation (1) Other expense, net $ — $ ( 6,221 ) Interest rate swap contracts loss Interest expense — ( 982 ) Amortization of benefit plan net actuarial losses and prior service cost Other expense, net ( 1,124 ) ( 585 ) Total loss reclassified from AOCL $ ( 1,124 ) $ ( 7,788 ) (1) The Company’s foreign subsidiaries in Russia and Brazil were substantially liquidated during the three months ended October 1, 2023, and the cumulative foreign currency translation losses associated with these entities were recognized in the consolidated condensed statements of operations. The tax impact of the cumulative foreign currency translation reclassification was approximately $ 1.1 million. 26 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 attributable to the EAAA reportable segment was recorded in restructuring, asset impairment, and other gains, net, in the consolidated condensed statements of operations. The Company determined that the Thailand facility sale did not meet the criteria for classification as discontinued operations. 27 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 . 28 Table of Contents