SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended September 28, 1997 Commission File Number 0-12016 ------------------------------ INTERFACE, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) GEORGIA 58-1451243 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339 --------------------------------------------------------- (Address of principal executive offices and zip code) (770) 437-6800 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Shares outstanding of each of the registrant's classes of common stock at November 7, 1997: Class Number of Shares ----- ---------------- Class A Common Stock, $.10 par value per share 21,378,397 Class B Common Stock, $.10 par value per share 2,752,331 1
INTERFACE, INC. INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Balance Sheets - September 28, 1997 and 3 December 29, 1996 Statements of Income - Three Months and 4 Nine Months Ended September 28, 1997 and September 29, 1996 Statements of Cash Flows - Nine Months 5 Ended September 28, 1997 and September 29, 1996 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of 12 Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of 14 Security Holders Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 ____________________________________ THIS FORM 10-Q CONTAINS STATEMENTS WHICH MAY CONSTITUTE "FORWARD- LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ANY SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THE RISKS AND UNCERTAINTIES DISCUSSED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR ITS FISCAL QUARTER ENDED MARCH 30, 1997, UNDER THE CAPTION "CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS" IN ITEM 5, WHICH DISCUSSION IS INCORPORATED HEREIN BY THIS REFERENCE. 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) <TABLE> <CAPTION> ASSETS SEPTEMBER 28, DECEMBER 29, - ------ 1997 1996 ---- ---- <S> <C> <C> CURRENT ASSETS: Cash and Cash Equivalents $ 9,616 $ 8,762 Accounts Receivable 190,592 167,817 Inventories 165,655 146,678 Deferred Tax Asset 7,100 7,057 Prepaid Expenses 28,241 22,986 --------- --------- TOTAL CURRENT ASSETS 401,204 353,300 PROPERTY AND EQUIPMENT, less accumulated depreciation 224,015 208,791 EXCESS OF COST OVER NET ASSETS ACQUIRED 279,475 249,070 OTHER ASSETS 46,524 51,385 --------- --------- $ 951,218 $ 862,546 ========= ========= LIABILITIES AND COMMON SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes Payable $ 17,693 $ 14,918 Accounts Payable 78,807 74,960 Accrued Expenses 90,976 70,919 Current Maturities of Long-Term Debt 1,697 2,919 --------- --------- TOTAL CURRENT LIABILITIES 189,173 163,716 LONG-TERM DEBT, less current maturities 301,379 254,353 SENIOR SUBORDINATED NOTES 125,000 125,000 DEFERRED INCOME TAXES 26,119 23,484 --------- --------- TOTAL LIABILITIES 641,671 566,553 --------- --------- Minority Interest 3,125 3,125 Redeemable Preferred Stock - 19,750 Common Stock 2,762 2,536 Additional Paid-In Capital 160,346 124,557 Retained Earnings 187,027 166,828 Foreign Currency Translation Adjustment (25,967) (3,057) Treasury Stock, 3,600 Class A Shares, at Cost (17,746) (17,746) --------- --------- $ 951,218 $ 862,546 ========= ========= </TABLE> See accompanying notes to consolidated condensed financial statements. 3
INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net Sales $297,352 $275,041 $826,443 $717,546 Cost of Sales 196,699 187,581 553,473 492,509 -------- -------- -------- --------v Gross Profit on Sales 100,653 87,460 272,970 225,037 Selling, General and Administrative Expenses 74,056 65,910 203,867 170,887 -------- -------- -------- -------- Operating Income 26,597 21,550 69,103 54,150 Other (Expense) Income - Net (9,234) (9,105) (28,393) (25,683) -------- -------- -------- -------- Income before Taxes on Income 17,363 12,445 40,710 28,467 Taxes on Income 6,852 4,864 15,886 11,153 -------- -------- -------- -------- Net Income 10,511 7,581 24,824 17,314 Less: Preferred Dividends - 433 - 1,299 -------- -------- -------- -------- Net Income Applicable to Common Shareholders $ 10,511 $ 7,148 $ 24,824 $ 16,015 ======== ======== ======== ======== Primary Earnings Per Common Share $ 0.44 $ 0.34 $ 1.06 $ 0.82 ======== ======== ======== ======== Weighted Average Common Shares Outstanding 24,015 20,935 23,408 19,604 ======== ======= ======== ======== </TABLE> See accompanying notes to consolidated condensed financial statements. 4
INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED ----------------- SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ---- ---- (IN THOUSANDS) <S> <C> <C> OPERATING ACTIVITIES: Net income $ 24,824 $ 17,314 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 26,263 25,041 Deferred income taxes - - Cash provided by (used for): Accounts receivable (21,089) (20,461) Inventories (16,409) (9,671) Prepaid and other (6,309) (6,112) Accounts payable and accrued expenses 18,052 17,769 -------- -------- 25,332 23,880 -------- -------- INVESTING ACTIVITIES: Capital expenditures (33,963) (27,795) Acquisitions of businesses (34,647) (46,912) Other (7,601) (3,354) -------- -------- (76,211) (78,061) -------- -------- FINANCING ACTIVITIES: Net borrowing (reduction) of long-term debt 50,546 49,638 Issuance of common stock 5,513 881 Dividends paid (4,626) (4,839) -------- -------- 51,433 45,680 -------- -------- Net cash provided by (used for) operating, investing and financing activities 554 (8,501) Effect of exchange rate changes on cash 300 (95) -------- -------- CASH AND CASH EQUIVALENTS: Net increase (decrease) during the period 854 (8,596) Balance at beginning of period 8,762 8,750 -------- -------- Balance at end of period $ 9,616 $ 154 ======== ======== </TABLE> See accompanying notes to consolidated condensed financial statements. 5
INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 - CONDENSED FOOTNOTES 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 notes to the Company's year-end financial statements contained in its Annual Report to Shareholders for the fiscal year ended December 29, 1996, as filed with the Commission. The financial information included in this report has been prepared by the Company, without audit, and should not be relied upon to the same extent as audited financial statements. In the opinion of management, the financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. NOTE 2 - INVENTORIES Inventories are summarized as follows: SEPTEMBER 28, DECEMBER 29, 1997 1996 ---- ---- Finished Goods $ 92,518 $ 81,034 Work-in-Process 33,731 30,464 Raw Materials 39,406 35,180 -------- -------- $165,655 $146,678 ======== ======== NOTE 3 - BUSINESS ACQUISITIONS During the third quarter of 1997, the Company acquired 100% of the outstanding capital stock of Camborne Holdings, Ltd., a manufacturer of interior fabrics based in West Yorkshire, U.K., and Facilities Resource Group, Inc., a provider of furniture installation and related services based in Chicago, Illinois. As consideration, the Company issued 102,562 shares of Class A Common Stock, 127,806 shares of Class B Common Stock and paid approximately $23 million in cash. Both of the acquisitions were accounted for as purchases; accordingly, the results of operations for the acquired companies are included in the Company's consolidated financial statements from the respective dates of the acquisitions. The excess of the purchase price over the fair value of the net assets acquired will be amortized over 25 years. During the second quarter of 1997, the Company acquired 100% of the outstanding capital stock of four floorcovering contractors -- Floormart, Inc., based in Glendale, California; Canaan Corporation, based in Hamden, Connecticut; Carpet Services 6
of Tampa, Inc., based in Tampa, Florida; and Carpet Solutions Holdings Pty Ltd., based in Brisbane, Queensland, Australia. As consideration, the Company issued 155,022 shares of Class A Common Stock valued at approximately $2.1 million and paid $5.3 million in cash. (The Company also paid $6.2 million in the second quarter of 1997 in connection with acquisitions completed in prior periods.) All of the acquisitions were accounted for as purchases; accordingly, the results of operations for the acquired companies are included in the Company's consolidated financial statements from the respective dates of the acquisitions. The excess of the purchase price over the fair value of the net assets acquired will be amortized over 25 years. During fiscal 1996, the Company acquired 100% of the outstanding capital stock (and, in one case, all of the assets) of fifteen floorcovering contractors -- Landry's Commercial Flooring Co., Inc., based in Oregon; Reiser Associates, Inc., based in Texas; Earl W. Bentley Operating Co., Inc., based in Oklahoma; Quaker City International, Inc., based in Pennsylvania; Superior Holdings, Inc., based in Texas; Flooring Consultants, Inc., based in Arizona; ParCom, Inc., based in Virginia; Congress Flooring Corp., based in Massachusetts; Southern Contract Systems, Inc., based in Georgia; B. Shehadi & Sons, Inc., based in New Jersey; A & F Installations, Inc., based in New Jersey; Lasher/White Carpet Co., Inc., based in New York; Oldtown Carpet Center, Inc., based in North Carolina; Architectural Floors, a division of Continental Office Furniture Corp., based in Ohio; and Floor Concepts, Inc., based in Maryland. As consideration, the Company issued 2,674,906 shares of Class A Common Stock valued at approximately $19.3 million, $.8 million in 7% Notes and paid $23.0 million in cash. All of the acquisitions were accounted for as purchases; accordingly, the results of operations for the acquired companies are included in the Company's consolidated financial statements from the respective dates of the acquisitions. The excess of the purchase price over the fair value of the net assets acquired was approximately $33.9 million and is being amortized over 25 years. In February 1996, the Company acquired 100% of the outstanding common stock of Renovisions, Inc., a nationwide installation services firm (based in Georgia) that has pioneered a new method of carpet replacement, for approximately $6 million in cash ($4 million in February 1996 and $2 million in February 1997). The acquisition was accounted for as a purchase and, accordingly, the results of operations for Renovisions are included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price over the fair value of net assets acquired was approximately $4.3 million, and is being amortized over 25 years. In February 1996, the Company acquired all of the outstanding common stock of C-Tec, Inc., a Michigan-based producer of raised/access flooring systems, for approximately $8.8 million (comprised of $4.5 million in cash and $4.3 million in 6% subordinated convertible notes). The acquisition was accounted for as a purchase and, accordingly, the results of operations for C-Tec are included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price over the fair value of net assets acquired was approximately $3.1 million, and is being amortized over 25 years. 7
NOTE 4 - EARNINGS PER SHARE AND DIVIDENDS Earnings per share are computed by dividing net income applicable to common shareholders by the combined weighted average number of shares of Class A and Class B Common Stock outstanding during the particular reporting period. The earnings computation does not give effect to the negligible dilutive impact of outstanding stock options. The Series A Preferred Stock issued in June 1993 and redeemed in December 1996 (see Note 5 below) is not considered to be a common stock equivalent because at the date of issuance the stated rate of interest was greater than 66 2/3% of the AAA bond rate. In computing primary earnings per share, the preferred stock dividend of 7% per annum reduces income applicable to common shareholders. For the purposes of computing earnings per share and dividends paid per share, the Company is treating as treasury stock (and therefore not outstanding) the shares that are owned by a wholly-owned subsidiary (3,600,000 Class A shares, recorded at cost). NOTE 5 - REDEEMABLE PREFERRED STOCK In December 1996, the Company notified the holders of its Series A Preferred Stock that it intended to redeem up to $10 million of the approximately $19.7 million (face value) Series A Preferred Stock then outstanding. As a result of this notice, the Series A preferred shareholders, with one exception, instead elected to convert their shares of Series A Preferred Stock into an aggregate of approximately 1,360,000 shares of the Company's Class A Common Stock. The shares of Series A Preferred Stock owned by the non-converting shareholder were redeemed for approximately $6,000. 8
NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS The Guarantor Subsidiaries, which consist of the Company's principal domestic subsidiaries, are guarantors of the Company's 9.5% senior subordinated notes due 2005. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission. INTERFACE, INC. AND SUBSIDIARIES NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS <TABLE> <CAPTION> STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997 INTERFACE, CONSOLIDATION NON- INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ ----------- ------------- ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Net sales $658,258 $271,032 $ - $(102,847) $826,443 Cost of sales 468,904 187,416 - (102,847) 553,473 -------- -------- ------- --------- -------- Gross profit on sales 189,354 83,616 - - 272,970 Selling, general and 138,755 54,138 10,974 - 203,867 administrative expenses -------- -------- ------- --------- -------- Operating income 50,599 29,478 (10,974) - 69,103 Other expense (income) Interest Expense 7,890 3,238 15,175 - 26,303 Other 2,040 3,324 (3,274) - 2,090 -------- -------- ------- --------- -------- Total other expense 9,930 6,562 11,901 - 28,393 -------- -------- ------- --------- -------- Income before taxes on income and Equity in income of 40,669 22,916 (22,875) - 40,710 subsidiaries Taxes on income 16,098 8,396 (8,608) - 15,886 Equity in income of - - 39,091 (39,091) - subsidiaries -------- -------- ------- --------- -------- Net income applicable to $24,571 $14,520 $24,824 ($39,091) $ 24,824 common shareholders ======== ======== ======= ========= ======== </TABLE> 9
<TABLE> <CAPTION> BALANCE SHEET SEPTEMBER 28, 1997 CONSOLIDATION NON- INTERFACE, INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ -------------- ------------- ----------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 4,914 $ 4,702 $ - $ - $ 9,616 Accounts receivable 131,047 79,071 (19,526) - 190,592 Inventories 112,935 52,720 - - 165,655 Miscellaneous 9,431 16,122 9,788 - 35,341 ---------- -------- --------- ------------ --------- Total current assets 258,327 152,615 (9,738) - 401,204 Property and equipment, less accumulated depreciation 152,474 64,863 6,678 - 224,015 Investment in subsidiaries 127,062 18,200 381,670 (526,932) - Miscellaneous 130,567 14,730 406,121 (504,894) 46,524 Excess of cost over net assets 183,858 88,694 6,923 - 279,475 acquired ---------- -------- --------- ------------ --------- $852,288 $339,102 $791,654 $(1,031,826) $951,218 ========== ======== ========= =========== ========= LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 12,728 $ 4,965 $ - $ - $ 17,693 Accounts payable 42,758 32,741 3,308 - 78,807 Accrued expenses 57,103 34,495 (622) - 90,976 Current maturities of long- 1,697 - - - 1,697 term debt ---------- -------- --------- ------------ --------- Total current liabilities 114,286 72,201 2,686 - 189,173 Long-term debt, less current maturities 227,838 37,070 304,271 (267,800) 301,379 Senior subordinated notes - - 125,000 - 125,000 Deferred income taxes 12,862 937 12,320 - 26,119 Minority interests 3,125 - - - 3,125 ---------- -------- --------- ------------ --------- Total liabilities 358,111 110,208 444,277 (267,800) 644,796 Redeemable preferred stock 57,891 - - (57,891) - Common stock 81,704 102,199 2,762 (183,903) 2,762 Additional paid-in capital 187,195 11,030 160,346 (198,225) 160,346 Retained earnings 174,064 132,197 187,027 (306,261) 187,027 Foreign currency translation (6,677) (16,532) (2,758) - (25,967) adjust. Treasury stock - - - (17,746) (17,746) ---------- -------- --------- ------------ --------- $852,288 $339,102 $791,654 $(1,031,826) $951,218 ========== ======== ========= ============ ========= </TABLE> 10
<TABLE> <CAPTION> STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997 INTERFACE, CONSOLIDATION NON- INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ ----------- ----------- ------------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Cash flows from operating activities: $ 27,530 $ 2,803 $ (5,001) $ - $ 25,332 -------- -------- -------- ------- -------- Cash flows from investing activities: Purchase of plant and equipment (23,664) (7,602) (2,697) - (33,963) Acquisitions, net of cash acquired - - (34,647) - (34,647) Other - - (7,601) - (7,601) -------- -------- -------- ------- -------- Net cash provided by (used in) (23,664) (7,602) (44,945) - (76,211) investing activities -------- -------- -------- ------- -------- Cash flows from financing activities: Net borrowings (repayments) (8,071) 5,115 53,502 - 50,546 Proceeds from issuance of common - - 5,513 - 5,513 stock Cash dividends paid - - (4,626) - (4,626) Other - - - - - -------- -------- -------- ------- -------- Net cash provided by (used in) (8,071) 5,115 54,389 - 51,433 financing activities -------- -------- -------- ------- -------- Effect of exchange rate change on - 300 - - 300 cash -------- -------- -------- ------- -------- Net increase (decrease) in cash (4,205) 616 4,443 - 854 Cash at beginning of year 3,481 4,791 490 - 8,762 -------- -------- -------- ------- -------- Cash at end of year $ (724) $ 5,407 $ 4,933 $ - $ 9,616 ======== ======== ======== ======= ======== </TABLE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS. For the three month and nine month periods ended September 28, 1997, the Company's net sales increased $22.3 million (8.1%) and $108.9 million (15.2%), respectively, compared with the same periods in 1996. These increases were primarily attributable to increased sales volume in (i) the Company's floorcoverings operations due to increased demand in the U.S. for its modular carpet products, as well as the acquisitions of the floorcovering contractors in the Re:Source Americas network, (ii) the Company's specialty products division, resulting in part from the sale of specialty products through the Re:Source Americas network, and (iii) the Company's interior fabrics operations due to increased U.S. and foreign demand for its products, as well as the acquisition of Camborne Holdings, Ltd. early in the third quarter. The weakening of certain key currencies against the U.S. dollar (particularly the Dutch guilder and Japanese yen) continue to somewhat offset the increase in sales growth. Cost of sales, as a percentage of sales, decreased slightly to 66.1% and 67%, respectively, for the three month and nine month periods ended September 28, 1997, when compared to 68.2% and 68.6% for the same periods in 1996. The decreases are primarily attributable to manufacturing efficiencies resulting from the Company's "war on waste" initiative and the Company's new modern yarn plant in its interior fabrics operations. Also, the Company's mass customization production strategy continues to result in a shift to higher margin products. These improved margin levels continue to be somewhat mitigated by the acquisition of the floorcovering contractors comprising the Re:Source Americas network, which historically had higher cost of sales ratios than the Company. Selling, general and administrative expenses, as a percentage of sales, increased to 24.9% and 24.7%, respectively, for the three month and nine month periods ended September 28, 1997, when compared to 24% and 23.8% during the same periods in 1996. The increases are attributable to (i) administrative expenses associated with building an infrastructure to manage the Re:Source Americas network, and (ii) increased marketing and sampling expenses in the Company's floorcovering operations associated with the introduction of new products as the Company continues to implement a mass customization strategy in both its U.S. and its European and Asia-Pacific operations. For the three month and nine month periods ended September 28, 1997, the Company's other expense increased $.1 million and $2.7 million, respectively, compared to the same periods in 1996, primarily due to an increase in bank debt incurred as a result of the Company's acquisitions, as well as an increase in interest rates. As a result of the aforementioned factors, the Company's net income increased 47% to $10.5 million and 55% to $24.8 million, respectively, for the three month and nine month periods ended September 28, 1997, compared to the same periods in 1996. LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the nine month period ended September 28, 1997 have been (i) $34.6 million associated with acquisitions, (ii) $34 million for additions to property and equipment in the Company's manufacturing facilities, and (iii) $7.6 million related to 12
various deposits and other long-term assets. These uses were funded primarily by $50.5 million from long-term financing, $25.3 million from operating activities and $5.5 million from the issuance of common stock. Cash provided by operating activities increased to $25.3 million during the nine month period ended September 28, 1997 from $23.9 million during the corresponding period in the prior year. This increase was caused primarily by increases in net income, and accounts payable and accrued expenses. The increase was somewhat offset by increases in accounts receivable and inventory. The Company, as of September 28, 1997, recognized a $22.9 million decrease in foreign currency translation adjustment compared to that of December 29, 1996. The decrease was associated primarily with the Company's investments in subsidiaries located in the United Kingdom and Continental Europe. The translation adjustment to shareholders' equity was converted by the guidelines of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 52. The Company employs a variety of off-balance sheet financial instruments, including foreign currency swap agreements and foreign currency exchange contracts, to reduce its exposure to adverse fluctuations in interest and foreign currency exchange rates. At September 28, 1997, the Company had approximately $35 million (notional amount) of foreign currency hedge contracts outstanding, consisting principally of currency swap contracts to hedge firmly committed Dutch guilder and Japanese yen currency revenues. At September 28, 1997, the Company utilized interest rate swap agreements to effectively convert approximately $73 million of variable rate debt to fixed rate debt. The interest rate swap agreements have maturity dates ranging from nine to twenty-four months. The Company continually monitors its position with, and the credit quality of, the financial institutions which are counter- parties to its off-balance sheet financial instruments and does not currently anticipate nonperformance by the counter-parties. Management believes that the cash provided by operations and available under long-term loan commitments will provide adequate funds for current commitments and other requirements in the foreseeable future. 13
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not aware of any material pending legal proceedings involving it or any of its property. ITEM 2. CHANGES IN SECURITIES RECENT SALES OF UNREGISTERED SECURITIES During the fiscal quarter ended September 28, 1997, the Company issued an aggregate of 230,368 shares of its Common Stock, par value $.10 per share, that were not registered under the Securities Act of 1933 (the "Securities Act"). The shares, in combination with cash, were issued as consideration in the acquisitions of Camborne Holdings, Ltd. and Facilities Resource Group, Inc., and were issued to an aggregate of three individuals and entities. The market price on the dates of issuance ranged from $22.125 per share to $24.625 per share. The sales of the above securities are exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: EXHIBIT DESCRIPTION OF EXHIBIT NUMBER 3.1 Articles of Incorporation (composite as of September 8, 1988) (included as Exhibit 3.1 to the Company's annual report on Form 10-K for the year ended January 3, 1993 previously filed with the Commission and incorporated herein by reference) and Articles of Amendment (Series A Preferred Stock Designation), dated June 17, 1993 (included as Exhibit 4.1 to the Company's current report on Form 8-K, filed with the Commission on July 7, 1993 and incorporated herein by reference). 3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the quarter ended April 1, 1990, previously filed with the Commission and incorporated herein by reference). 4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Articles of Incorporation, as amended, and Bylaws defining the rights of holders of Common Stock of the Company. 14
4.2 Indenture governing the Company's 9.5% Senior Subordinated Notes due 2005, dated as of November 15, 1995, among the Company, certain U.S. subsidiaries of the Company, as Guarantors, and First Union National Bank of Georgia, as Trustee (included as Exhibit 4.1 to the Company's registration statement on Form S-4, File No. 33-65201, previously filed with the Commission and incorporated herein by reference); and Supplement No. 1 to Indenture, dated as of December 27, 1996 (included as Exhibit 4.2(b) to the Company's Annual Report on Form 10-K for the year ended December 29, 1996, previously filed with the Commission and incorporated herein by reference). 4.3 Form of Exchange Note (included as part of Exhibit 4.2). 10.1 Seventh Amendment to Revolving Credit Loan Agreement dated August 5, 1997, among the Company, Interface Flooring Systems, Inc. and SunTrust Bank, Atlanta. 10.2 Shanghai Interface Carpet Co., Ltd. Joint Venture Contract dated March 20, 1996, among Interface Asia-Pacific, Inc., BASF Corporation and Shanghai China Textile International Science & Technological Industrial City Development Company. 10.3 Interface, Inc. Nonqualified Savings Plan (included as Exhibit 4 to the Company's Registration Statement on Form S-8, File No. 333-38677, previously filed with the Commission and incorporated herein by reference). 27.1 Financial Data Schedule (for SEC use only). (b) No reports on Form 8-K were filed during the quarter ended September 28, 1997. 15
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERFACE, INC. Date: November 12, 1997 By: /s/ Daniel T. Hendrix Daniel T. Hendrix Senior Vice President (Principal Financial Officer)
EXHIBIT INDEX Exhibit Number Description of Exhibit 10.1 Seventh Amendment to Revolving Credit Loan Agreement dated August 5, 1997, among the Company, Interface Flooring Systems, Inc. and SunTrust Bank, Atlanta. 10.2 Shanghai Interface Carpet Co., Ltd. Joint Venture Contract dated March 20, 1996, among Interface Asia- Pacific, Inc., BASF Corporation and Shanghai China Textile International Science & Technological Industrial City Development Company. 27.1 Financial Data Schedule (for SEC use only)