INTERFACE INC (TILE) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our revenues are derived from sales of floorcovering products, primarily modular carpet, resilient flooring, including luxury vinyl tile (“LVT”), rubber flooring products, and installation services and accessories. Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces. In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations. As a result, macroeconomic factors such as employment rates, office vacancy rates, work from home policies, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.

The Company has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment includes the United States, Canada and Latin America geographic areas. See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information. The results of operations discussion below also includes segment information.

We focus our marketing and sales efforts on both corporate office and non-corporate office market segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share. More than half of our consolidated net sales were in non-corporate office markets in fiscal years 2023, 2022, and 2021, primarily in education, healthcare, public buildings, residential/living, retail, and hospitality market segments. See Item 1, entitled “Business,” included in this Annual Report on Form 10-K for additional information regarding our mix of sales in corporate office verses non-corporate office market segments for the last three fiscal years by reportable segment.

Executive Summary

During 2023, we had consolidated net sales of $1,261.5 million, down 2.8% compared to $1,297.9 million in 2022, primarily due to decreased customer demand – particularly in the retail market segment. Consolidated operating income for 2023 was $104.5 million compared to consolidated operating income of $75.4 million in 2022, primarily due to a non-recurring goodwill and intangible asset impairment charge of $36.2 million recognized in 2022. Consolidated net income for 2023 was $44.5 million, or $0.76 per diluted share, compared to consolidated net income of $19.6 million, or $0.33 per diluted share, in 2022.

During 2022, we had consolidated net sales of $1,297.9 million, up 8.1% compared to $1,200.4 million in 2021, primarily due to higher sales in the corporate office, education and retail market segments. Consolidated operating income for 2022 was $75.4 million compared to consolidated operating income of $104.8 million in 2021, primarily due to higher inflationary pressures on raw materials and freight costs and a $36.2 million goodwill and intangible asset impairment charge in 2022. Consolidated net income for 2022 was $19.6 million, or $0.33 per diluted share, compared to consolidated net income of $55.2 million, or $0.94 per diluted share, in 2021.

A detailed discussion of our 2023 and 2022 consolidated and segment performance appears below under “Analysis of Results of Operations”.

Cybersecurity Event

As previously disclosed, on November 20, 2022, we discovered a cybersecurity attack, perpetrated by unauthorized third parties, affecting our IT systems. Promptly, out of an abundance of caution, we shut down certain systems including shipping, inventory management and production systems and engaged forensic experts to evaluate the extent of the Cyber Event and its impact to our operations. We also took steps to supplement existing security monitoring, including scanning and protective measures, and notified law enforcement.

27

Table of Contents

The Company substantially resumed its operations within two weeks following the occurrence of the Cyber Event. The investigation of the Cyber Event by our forensic experts was completed during 2023. We incurred approximately $1.1 million of costs in 2023 in connection with the investigation of the Cyber Event, which were recorded in selling, general and administrative expenses in the consolidated statements of operations. In 2022, we estimated that the Cyber Event adversely affected our fiscal year 2022 revenues by approximately $8 million in lost sales. We incurred approximately $5 million of costs related to the Cyber Event in 2022 for idle plant costs, direct labor costs during the period our manufacturing facilities were idle and third-party remediation costs. Approximately $4.8 million of the Cyber Event costs in 2022 were included in cost of sales in the consolidated statements of operations and approximately $0.3 million were included in selling, general and administrative expenses. We have insurance and anticipate that a portion of our financial losses related to the Cyber Event will ultimately be covered by insurance. We expect to incur ongoing costs for enhanced data security against unauthorized access to, or manipulation of, our systems and data.

Impact of Macroeconomic Conditions

During fiscal year 2023, the continued disruption in economic markets due to ongoing inflation, increases in interest rates, the Russia-Ukraine war, the onset of the Israel-Hamas war, a fairly stabilized but still challenging supply chain environment, a slow post COVID recovery in China and slow market conditions in the rest of Asia, and significant financial pressures in the commercial office market globally, all posed challenges for us. Management believes it is reasonably likely that these challenges will continue to affect our future operations and demand for our products to some degree during fiscal year 2024. We are also anticipating decreases in the cost of raw materials and freight, offset by continued unfavorable manufacturing fixed cost absorption during fiscal year 2024. To mitigate these impacts, we plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.

During fiscal year 2022, the COVID-19 pandemic had less of an impact on our overall financial results compared with the prior year as consolidated net sales increased 8.1% compared to 2021. Government imposed COVID-19 lockdowns and restrictions in parts of China in 2022 adversely impacted sales in China by approximately 13% compared to 2021. Global supply chain challenges and inflationary pressures in 2022 resulted in higher raw material costs, higher freight costs and shipping delays, which increased our operating costs and adversely impacted our gross profit margin in 2022.

28

Table of Contents

Analysis of Results of Operations

Consolidated Results

The following discussion and analyses reflect the factors and trends discussed in the preceding sections.

Consolidated net sales denominated in currencies other than the U.S. dollar were approximately 46% in 2023, 47% in 2022, and 50% in 2021. Because we have substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions. In 2023, the strengthening of the Euro against the U.S. dollar had a positive impact on our net sales, partially offset by the weakening of the Australian dollar, Chinese Renminbi, and Canadian dollar. Currency fluctuations had no material impact to operating income in 2023. In 2022, the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S. dollar had a negative impact on our net sales and operating income. In 2021, the strengthening of the Euro, Australian dollar, Chinese Renminbi and British Pound sterling against the U.S. dollar had a positive impact on our net sales and operating income.

The following table presents the amounts (in U.S. dollars) by which the exchange rates for translating Euros, British Pounds sterling, Australian dollars, Chinese Renminbi and Canadian dollars into U.S. dollars have affected our consolidated net sales and operating income during the past three years:

The following table presents, as a percentage of net sales, certain items included in our consolidated statements of operations during the past three years:

Consolidated Net Sales

Below we provide information regarding our consolidated net sales and analyze those results for each of the last three fiscal years. Fiscal years 2023, 2022, and 2021 each included 52 weeks.

29

Table of Contents

Consolidated net sales for 2023 compared with 2022

For 2023, our consolidated net sales decreased $36.4 million (2.8%) compared to 2022, comprised of lower sales volumes (approximately 7.9%) partially offset by higher prices (approximately 5.1%). Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated net sales comparison of approximately $1.4 million, meaning that if currency levels had remained constant year-over-year, our 2023 net sales would have been lower by this amount. On a market segment basis, the sales decrease was most significant in the retail and healthcare market segments partially offset by increases in education and residential living market segments. See the segment results discussion below for additional information on market segments.

Consolidated net sales for 2022 compared with 2021

For 2022, our consolidated net sales increased $97.5 million (8.1%) compared to 2021, comprised of higher sales volumes (approximately 5.4%) and higher prices (approximately 2.7%, including the impact of currency fluctuations). Fluctuations in currency exchange rates had a negative impact on our year-over-year consolidated net sales comparison of approximately $58.8 million, meaning that if currency levels had remained constant year-over-year, our 2022 net sales would have been higher by this amount. On a market segment basis, the sales increase was most significant in the corporate office, retail and education market segments. See the segment results discussion below for additional information on market segments.

Consolidated Cost and Expenses

The following table presents our consolidated cost of sales and selling, general and administrative (“SG&A”) expenses during the past three years:

Consolidated Cost of Sales

For 2023, our consolidated cost of sales decreased $39.8 million (4.6%) compared to 2022, primarily due to lower sales and lower freight costs (approximately $19 million) due to stabilizing supply chain conditions. Currency translation had no material impact on consolidated cost of sales compared to 2022. As a percentage of net sales, our consolidated cost of sales decreased to 65.0% in 2023 versus 66.3% in 2022. Management believes it is reasonably likely that lower inflation and decreases in the cost of raw materials, partially offset by unfavorable manufacturing fixed cost absorption, will continue to some degree in 2024, particularly in the first half of 2024. Management expects to continue managing the fixed cost under-absorption through higher sales prices, product mix and plant productivity initiatives.

For 2022, our consolidated cost of sales increased $92.5 million (12.1%) compared to 2021, primarily due to higher sales and continuing inflationary pressures on raw materials and freight costs. The increase in consolidated cost of sales was also impacted by higher energy costs (which were up approximately 28%) in our EAAA segment primarily due to shortages in the supply of natural gas in connection with the ongoing conflict between Russia and Ukraine. Currency translation had a positive impact on consolidated cost of sales of approximately $37.2 million (4.8%) compared to 2021. The increase in cost of sales in 2022 also included $4.8 million of costs related to the Cyber Event, as discussed above. As a percentage of net sales, our consolidated cost of sales increased to 66.3% in 2022 versus 64.0% in 2021, due to higher raw materials, freight and energy costs, as discussed above.

30

Table of Contents

Consolidated Gross Profit

For 2023, consolidated gross profit, as a percentage of net sales, was 35.0% compared to 33.7% for 2022. The increase in gross profit percentage was primarily due to (i) higher pricing (approximately 4%), partially offset by (ii) the unfavorable impact of inflation on raw material costs (approximately 1%), and (iii) unfavorable manufacturing fixed cost absorption and product mix (approximately 2%). Management believes it is reasonably likely that lower inflation and decreases in the cost of raw materials, partially offset by unfavorable manufacturing fixed cost absorption, will continue to some degree in 2024, particularly in the first half of 2024. Management expects to continue managing the fixed cost under-absorption through higher sales prices, product mix, and plant productivity measures.

For 2022, consolidated gross profit, as a percentage of net sales, was 33.7% compared to 36.0% for 2021. The decrease was primarily due to inflationary pressures for raw materials and freight costs.

Consolidated SG&A Expenses

For 2023, our consolidated SG&A expenses were $339.0 million versus $324.2 million in 2022. Currency translation had a $1.5 million (0.5%) negative impact on the year-over-year comparison. Consolidated SG&A expenses increased $14.9 million (4.6%) in 2023 compared to 2022, primarily due to (i) $6.5 million of higher selling expenses due to sales and marketing initiatives, (ii) $6.3 million of higher severance costs driven by employee headcount reductions and initiatives to reduce future costs, (iii) $4.4 million of higher professional fees, and (iv) $1.9 million of higher variable compensation costs. These increases were partially offset by lower plant closure costs of approximately $4.1 million related to the closure of our Thailand and Russia operations in 2022. As a percentage of net sales, SG&A expenses increased to 26.9% in 2023 versus 25.0% in 2022.

For 2022, our consolidated SG&A expenses were $324.2 million versus $324.3 million in 2021. Currency translation had a $9.5 million (4.1%) positive impact on the year-over-year comparison. Consolidated SG&A expenses were flat compared to 2021 as higher selling expenses of approximately $8.5 million due to higher sales were offset by lower labor costs due to prior year employee reductions and $5.4 million in lower professional fees due to prior year insurance recoveries. As a percentage of net sales, SG&A expenses decreased to 25.0% in 2022 versus 27.0% in 2021.

Restructuring Plans

On September 8, 2021, the Company committed to a restructuring plan that continued to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, involving the closure of the Company’s manufacturing facility in Thailand. During the second quarter of 2023, the Company completed the sale of the Thailand real estate and recognized a gain of $2.7 million.

During 2022, in conjunction with the closure of its Thailand facility, the Company recorded a write-down of inventory of $2.5 million within cost of sales in the consolidated statements of operations.

See Note 16 entitled “Restructuring and Other” and Note 7 entitled “Property, Plant and Equipment” of Part II, Item 8 of this Annual Report for additional information.

Goodwill, Intangible Asset and Fixed Asset Impairment

During 2023, there was no impairment of our goodwill or indefinite-lived intangible assets. During 2022, we recognized a charge of $36.2 million for the impairment of goodwill and certain intangible assets. See Note 12 entitled “Goodwill and Other Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.

During 2023, there were no material fixed asset impairment charges. In fiscal years 2022 and 2021, we recognized fixed asset impairment charges of $2.9 million and $4.4 million, respectively, for projects that were abandoned. These charges are included in selling, general and administrative expenses in the consolidated statements of operations.

Interest Expense

For 2023, our interest expense was $31.8 million, versus $29.9 million in 2022, primarily due to higher interest rates on outstanding term loan borrowings under the Syndicated Credit Facility, partially offset by lower outstanding term loan borrowings under the Facility. Our average borrowing rate under the Syndicated Credit Facility as of December 31, 2023, was 6.61% compared to 5.78% at January 1, 2023.

31

Table of Contents

For 2022, our interest expense was $29.9 million, versus $29.7 million in 2021. Higher interest rates in 2022 were offset by lower outstanding term loan borrowings under the Syndicated Credit Facility. Our average borrowing rate under the Syndicated Credit Facility as of January 1, 2023, was 5.78% compared to 1.91% at January 2, 2022.

Other Expense

During 2023, other expense, net, was $9.1 million, versus $3.6 million in 2022. The increase was primarily due to the substantial liquidation of our foreign subsidiaries in Brazil and Russia and the resulting recognition of $6.2 million of cumulative translation adjustments reclassified from accumulated other comprehensive loss.

Tax

For fiscal year 2023, the Company recorded income tax expense of $19.1 million on pre-tax income of $63.7 million, resulting in an effective tax rate of 30.1%. This compares with income tax expense of $22.4 million on pre-tax income of $41.9 million, resulting in an effective tax rate of 53.3%, for fiscal year 2022. The effective tax rate for fiscal year 2022 was significantly impacted by a non-deductible goodwill impairment charge. Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for fiscal year 2022. The decrease in the effective tax rate for fiscal year 2023, as compared to fiscal year 2022, excluding the goodwill impairment, was primarily due to favorable changes related to the cash surrender value of Company-owned life insurance, utilization of foreign tax credits, favorable U.S. tax effects from the repatriation of previously taxed foreign earnings, and non-deductible charges related to the closure of the Company’s manufacturing facility in Thailand in fiscal year 2022. This decrease was partially offset by a favorable change to unrecognized tax benefits in fiscal year 2022.

For fiscal year 2022, the Company recorded income tax expense of $22.4 million on pre-tax income of $41.9 million, resulting in an effective tax rate of 53.3%. This compares with income tax expense of $17.4 million on pre-tax income of $72.6 million, resulting in an effective tax rate of 24.0% for fiscal year 2021. The effective tax rate for fiscal year 2022 was significantly impacted by a non-deductible goodwill impairment charge. Excluding the impact of the non-deductible goodwill impairment charge, the effective tax rate was 31.4% for fiscal year 2022. The increase in the effective tax rate for fiscal year 2022, as compared to fiscal year 2021, excluding the goodwill impairment charge, was primarily due to an increase in non-deductible employee compensation, an increase in the valuation allowance on net operating loss and interest carryforwards, unfavorable changes related to the cash surrender value of Company-owned life insurance policies and unfavorable changes related to foreign exchange movements.

Segment Results

As discussed above, the Company has two operating and reportable segments – AMS and EAAA. See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.

AMS Segment – Net Sales and Adjusted Operating Income (“AOI”)

The following table presents AMS segment net sales and AOI for the last three fiscal years:

(1) Includes allocation of corporate SG&A expenses. Excludes Cyber Event costs, intangible asset impairment charge, and restructuring, asset impairment, severance, and other, net. See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.

AMS segment net sales for 2023 compared with 2022

During 2023, net sales in AMS decreased 2.2% versus 2022, comprised of lower sales volume partially offset by higher prices. On a market segment basis, the AMS sales decrease was most significant in the retail (down 50.6%) market segment partially offset by increases in the education (up 7.9%), corporate office (up 4.1%) and residential living (up 15.4%) market segments.

32

Table of Contents

AMS segment net sales for 2022 compared with 2021

During 2022, net sales in AMS increased 15.7% versus 2021, comprised of higher sales volumes and higher prices. On a market segment basis, the AMS sales increase was most significant in the retail (up 54.2%), education (up 18.9%), public buildings (up 18.0%), corporate office (up 11.7%) and healthcare (up 5.8%) market segments. These increases were partially offset by decreases in the consumer residential (down 8.7%) market segment.

AMS AOI for 2023 compared with 2022

AOI in AMS decreased 14.2% during 2023 compared to 2022, primarily due to unfavorable manufacturing fixed cost absorption and lower sales, partially offset by lower freight costs. AMS SG&A expenses as a percentage of net sales increased approximately 1.1% compared to 2022, primarily due to higher selling expenses, which contributed to the decrease in AOI for the current year. As a percentage of net sales, AOI decreased to 11.9% in 2023 versus 13.6% in 2022.

AMS AOI for 2022 compared with 2021

AOI in AMS increased 20.4% during 2022 compared to 2021, primarily due to higher sales. AMS SG&A expenses as a percentage of net sales in 2022 decreased approximately 0.7% compared to 2021, primarily due to lower administrative costs, which contributed to the increase in AOI in 2022. As a percentage of net sales, AOI increased to 13.6% in 2022 versus 13.1% in 2021.

EAAA Segment – Net Sales and AOI

The following table presents EAAA segment net sales and AOI for the last three fiscal years:

(1) Includes allocation of corporate SG&A expenses. Excludes goodwill and intangible asset impairment charges, purchase accounting amortization, Thailand plant closure inventory write-down, Cyber Event costs, and restructuring, asset impairment, severance, and other, net. See Note 20 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information.

EAAA segment net sales for 2023 compared with 2022

During 2023, net sales in EAAA decreased 3.6% versus 2022, comprised of lower sales volume partially offset by higher selling prices. Slower economic recovery and decreased customer demand in Asia resulted in approximately 25% lower net sales in Asia during 2023 compared to 2022. Currency fluctuations had a positive impact of approximately $3.5 million (0.6%) on EAAA net sales for 2023 compared to 2022 due to the strengthening of the Euro, partially offset by the weakening of the Australian dollar and Chinese Renminbi against the U.S. dollar. On a market segment basis, the EAAA sales decrease was most significant in the corporate office (down 3.5%), healthcare (down 23.5%), retail (down 22.8%), and education (down 3.9%) market segments, partially offset by increases in the hospitality (up 11.5%) market segment.

EAAA segment net sales for 2022 compared with 2021

During 2022, net sales in EAAA decreased 0.9% versus 2021. Higher selling prices and volume were offset by the impact of negative currency fluctuations of approximately $56.7 million (10.3%) for 2022 compared to 2021 due to the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S. dollar. On a market segment basis, EAAA sales increased in the corporate office (up 6.2%) and hospitality (up 22.3%) market segments. These increases were offset by decreases in the public buildings (down 25.7%), transportation (down 21.3%), retail (down 14.9%) and healthcare (down 8.2%) market segments.

33

Table of Contents

EAAA AOI for 2023 compared with 2022

AOI in EAAA decreased 4.8% during 2023 versus 2022 primarily due to the impact of lower sales, inflationary pressures on raw material costs, and unfavorable manufacturing fixed cost absorption on lower production volumes. Currency fluctuations had no material impact on EAAA AOI in 2023 compared to 2022. As a percentage of net sales, AOI was 5.5% in both 2023 and 2022.

EAAA AOI for 2022 compared with 2021

AOI in EAAA decreased 19.3% during 2022 versus 2021 due to continuing inflationary pressures on raw materials and higher energy costs (which were up approximately 28%) primarily due to natural gas shortages in connection with the ongoing conflict between Russia and Ukraine. The decrease in AOI was also due to negative currency fluctuations of approximately $6.5 million (9.9%) due to the weakening of the Euro, Australian dollar, British Pound sterling and Chinese Renminbi against the U.S. dollar. EAAA SG&A expenses as a percentage of net sales in 2022 decreased approximately 2.5% compared to the prior year, which partially offset the negative impacts on AOI discussed above. As a percentage of net sales, AOI decreased to 5.5% in 2022 versus 6.8% in 2021.

Financial Condition, Liquidity and Capital Resources

General

In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs, in addition to funding normal course SG&A expenses, anticipated capital expenditures, interest expense and potential special projects. We generate our cash and other liquidity requirements primarily from our operations and from borrowings under our Syndicated Credit Facility (the “Facility”) discussed below. We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations.

Below are estimates of our material cash requirements for future periods. The short-term period represents payments due within the 12 months following December 31, 2023, and the long-term period represents payments due beyond the short-term period.

Historically, we use more cash in the first half of the fiscal year, as we pay insurance premiums, taxes and incentive compensation and build up inventory in preparation for the holiday/vacation season of our international operations. As outlined in the table above, we have approximately $73.4 million in material contractual cash obligations due within the next year, which includes, among other things, scheduled debt repayments under the Facility, pension contributions, interest payments on our debt, and lease commitments. Our long-term debt obligations include the contractually scheduled principal repayment of our term loan and revolving loan borrowings under the Facility, which matures in 2027, and $300 million on our Senior Notes due in 2028. Operating and finance lease obligations consist of undiscounted lease payments due over the term of the lease. Expected interest payments are those associated with borrowings under the Facility and Senior Notes consistent with our contractually scheduled principal repayments. Our purchase obligations are for non-cancellable agreements primarily for raw material purchases and capital expenditures. Our pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and exclude the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans.

Based on current interest rates and debt levels, we expect our aggregate interest expense for 2024 to be approximately $27 million. We estimate aggregate capital expenditures in 2024 to be approximately $42 million, although we are not committed to this amount.

34

Table of Contents

Liquidity

At December 31, 2023, we had $110.5 million in cash. Approximately $5.7 million of this cash was located in the U.S., and the remaining $104.8 million was located outside of the U.S. The cash located outside of the U.S. is indefinitely reinvested in the respective jurisdictions (except as identified below). We believe that our strategic plans and business needs, particularly for working capital needs and capital expenditure requirements in Europe, Asia, and Australia, support our assertion that a portion of our cash in foreign locations will be reinvested and remittance will be postponed indefinitely. Of the $104.8 million of cash in foreign jurisdictions, approximately $51.9 million represents earnings which we have determined are not permanently reinvested, and as such we have provided for foreign withholding and U.S. state income taxes on these amounts in accordance with applicable accounting standards.

As of December 31, 2023, we had $121.7 million of borrowings outstanding under our Facility, all of which were term loan borrowings. There were no revolving loan borrowings outstanding as of December 31, 2023. Additionally, $1.6 million in letters of credit were outstanding under the Facility at the end of fiscal year 2023. As of December 31, 2023, we had additional borrowing capacity of $298.4 million under the Facility. As of December 31, 2023, the weighted average interest rate on borrowings outstanding under the Facility was 6.61%. As of December 31, 2023, there were no other lines of credit available to the Company.

In addition, as of December 31, 2023, we had $300.0 million of 5.50% Senior Notes due 2028 (the “Senior Notes”) outstanding, which are discussed further below.

It is important for you to consider that we have a significant amount of indebtedness. Our Facility matures in October of 2027, and the Senior Notes, as discussed below, mature in December 2028. We cannot assure you that we will be able to renegotiate or refinance any of our debt on commercially reasonable terms, or at all. If we are unable to refinance our debt or obtain new financing, we would have to consider other options, such as selling assets to meet our debt service obligations and other liquidity needs, or using cash, if available, that would have been used for other business purposes.

It is also important for you to consider that borrowings under our Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that interest rates may increase. For information regarding the current variable interest rates of these borrowings, the potential impact on our interest expense from hypothetical increases in short term interest rates, and the former interest rate swap transaction, please see the discussion in Item 7A of this Report.

We are not a party to any material off-balance sheet arrangements.

Balance Sheet

Accounts receivable, net, were $163.4 million at December 31, 2023, compared to $182.8 million at January 1, 2023. The decrease of $19.4 million was primarily due to customer collections in 2023, including the impact of delays in customer billings from the Cyber Event, in which the due dates for those delayed billings were pushed from the fourth quarter of 2022 to the first quarter of 2023.

Inventories, net, were $279.1 million at December 31, 2023, compared to $306.3 million at January 1, 2023. The decrease of $27.2 million was primarily due to decreases in the cost of raw materials during the current year, lower manufacturing volume due to reduced customer demand, and improvements in working capital management.

35

Table of Contents

Analysis of Cash Flows

The following table presents a summary of cash flows for fiscal years 2023, 2022 and 2021:

We ended 2023 with $110.5 million in cash, an increase of $12.9 million during the year. The increase was primarily due to the following:

•Cash provided by operating activities was $142.0 million for 2023, which represents an increase of $99.0 million compared to 2022. The increase in operating cash flows was primarily due to a greater source of cash from working capital in 2023. Specifically, customer collections in 2023 contributed to a decrease in accounts receivable, primarily attributable to delays in customer billings from the Cyber Event, in which due dates for those delayed billings were pushed from the fourth quarter of 2022 to the first quarter of 2023. The 2022 comparable period also included a greater use of cash for working capital attributable to an increase in inventories compared with 2023.

•Cash used in investing activities was $19.5 million for 2023, which represents an increase of $1.1 million compared to 2022. The increase was primarily attributable to an increase in capital expenditures due to increased capital investment, partially offset by the proceeds of approximately $6.6 million from the sale of the Company’s Thailand real estate in 2023.

•Cash used in financing activities was $111.6 million for 2023, which represents an increase of $92.1 million compared to 2022. The year-over-year difference was primarily due to lower revolving loan borrowings combined with higher repayments of term loan borrowings in 2023 as a result of cash generated from operating activities as described above. Fiscal year 2022 also included repurchases of the Company’s common stock that did not occur in 2023, which partially offset the increased use of cash for financing activities in 2023 compared with 2022.

We ended 2022 with $97.6 million in cash, an increase of $0.3 million during the year. The increase was primarily due to the following:

•Cash provided by operating activities was $43.1 million for 2022, which represents a decrease of $43.6 million compared to 2021. The decrease was primarily due to a greater use of cash for working capital during 2022. Specifically, higher inventories as a result of higher raw material costs and input costs contributed to the greater use of cash for working capital in 2022. Higher variable compensation payouts in the first quarter of 2022 (related to 2021 performance) also contributed to the increased use of cash for 2022. Cash provided by operating activities in 2022 also was negatively impacted by delays in billings due to the Cyber Event, which pushed the due dates for those delayed billings from the fourth quarter of 2022 to the first quarter of 2023.

•Cash used in investing activities was $18.4 million for 2022, which represents a decrease of $9.6 million compared to 2021. The decrease was primarily due to reduced capital expenditures.

36

Table of Contents

•Cash used in financing activities was $19.5 million for 2022, which represents a decrease of $41.4 million compared to 2021. The year-over-year difference was primarily due to higher revolving loan borrowings in 2022 as a source of cash to fund operating activities as described above, offset by a use of cash for repurchases of the Company’s common stock pursuant to a new share repurchase program adopted in the second quarter of 2022. Fiscal year 2021 also included higher repayments of approximately $60 million of term loan borrowings which contributed to a greater use of cash in that period.

We ended 2021 with $97.3 million in cash, a decrease of $5.8 million during the year. The decrease was primarily due to the following:

•Cash provided by operating activities was $86.7 million for 2021, which represents a decrease of $32.4 million compared to 2020. The decrease was primarily due to a greater use of cash for working capital during 2021. Specifically, higher accounts receivable and inventories primarily attributable to increased customer demand in 2021 were partially offset by increases in accounts payable and accrued expenses that contributed positively to the change in working capital. Lower variable compensation payouts in 2021 (related to 2020 performance) had a positive impact on cash provided by operating activities, partially offsetting the decrease from changes in working capital.

•Cash used in investing activities was $28.1 million for 2021, which represents a decrease of $33.6 million from 2020. The decrease was primarily due to lower capital expenditures compared to 2020 as two major capital projects were substantially completed in the prior year.

•Cash used in financing activities was $60.9 million for 2021, which represents an increase of $18.1 million compared to 2020. In 2021, we repaid approximately $60 million in term loan borrowings which contributed to the increase in cash used in financing activities (compared with 2020, when repayments on term loan borrowings were largely funded with the proceeds from the issuance of the $300 million Senior Notes).

Share Repurchases

In the second quarter of 2022, the Company adopted a new share repurchase program in which the Company is authorized to repurchase up to $100 million of its outstanding shares of common stock. The program has no specific expiration date. No shares of common stock were repurchased during 2023 pursuant to this program. During 2022, the Company repurchased and retired an aggregate of 1,383,682 shares at a weighted average price of $12.41 per share, or $17.2 million, pursuant to this program.

As of December 31, 2023, approximately $82.8 million remains authorized pursuant to this program for future share repurchases. The program does not require the Company to repurchase a specific number or amount of shares, or to do so within any specific time periods.

Syndicated Credit Facility

In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our Facility. At December 31, 2023, the Facility provided the Company and certain of its subsidiaries with a multicurrency revolving loan facility up to $300 million, as well as other U.S. denominated and multicurrency term loans. On October 14, 2022, in connection with the fifth amendment to the Facility, the maturity date was extended to October 2027. Material terms under the Facility are discussed below. For additional information please see Note 9 entitled “Long-Term Debt” in Item 8 of this Report.

Interest Rates and Fees

Under the Facility, interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 2.00%, depending on the Company’s consolidated net leverage ratio (as defined in the Facility agreement) as of the most recently completed fiscal quarter. Interest on SOFR-based and alternative currency loans are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable SOFR rate or alternative currency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company pays a commitment fee ranging from 0.20% to 0.40% per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.

37

Table of Contents

Fees for commercial letters of credit are computed as 1.00% per annum of the amount available to be drawn under such letters of credit. Fees for standby letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% per annum of the amount available to be drawn under such standby letters of credit, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter.

LIBOR Transition

On December 9, 2021 and October 14, 2022, we entered into the fourth and fifth amendments, respectively, to our Facility. These amendments, among other changes, replaced the LIBOR benchmark rates with specified successor benchmark rates, including SOFR benchmark interest rates applicable to all loans denominated in U.S. dollars.

Covenants

The Facility contains standard and customary covenants for agreements of this type, including various reporting, affirmative and negative covenants. Among other things, these covenants limit our ability to:

•create or incur liens on assets;

•make acquisitions of or investments in businesses (in excess of certain specified amounts);

•engage in any material line of business substantially different from the Company’s current lines of business;

•incur indebtedness or contingent obligations;

•sell or dispose of assets (in excess of certain specified amounts);

•pay dividends or repurchase our stock (in excess of certain specified amounts);

•repay other indebtedness prior to maturity unless we meet certain conditions; and

•enter into sale and leaseback transactions.

The Facility also requires us to remain in compliance with the following financial covenants as of the end of each fiscal quarter, based on our consolidated results for the year then ended:

•Consolidated Secured Net Leverage Ratio: Must be no greater than 3.00:1.00.

•Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00.

Events of Default

If we breach or fail to perform any of the affirmative or negative covenants under the Facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain subsidiaries, or if we breach or fail to perform any covenant or agreement contained in any instrument relating to any of our other indebtedness exceeding $20 million), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders’ Administrative Agent may, and upon the written request of a specified percentage of the lender group shall:

•declare all commitments of the lenders under the facility terminated;

•declare all amounts outstanding or accrued thereunder immediately due and payable; and

•exercise other rights and remedies available to them under the agreement and applicable law.

Collateral

Pursuant to a Second Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets of Interface, Inc. and our domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries. If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivable, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.

Under the Facility, we are required to make quarterly amortization payments of the term loan borrowings. The amortization payments are due on the last day of the calendar quarter.

38

Table of Contents

We are in compliance with all covenants under the Facility and anticipate that we will remain in compliance with the covenants for the foreseeable future.

Senior Notes

As of December 31, 2023, the Company had $300 million of Senior Notes outstanding. The Senior Notes bear an interest rate at 5.50% per annum and mature on December 1, 2028. Interest is paid semi-annually on June 1 and December 1 of each year. Debt issuance costs associated with the Senior Notes are recorded as a reduction of long-term debt in the consolidated balance sheets and are amortized over the life of the outstanding debt.

The Senior Notes are unsecured and are guaranteed, jointly and severally, by each of the Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its Facility. The Company’s foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors. Net sales for the non-guarantor subsidiaries were approximately $584 million for fiscal year 2023, $597 million for fiscal year 2022, and $594 million for fiscal year 2021. Total indebtedness of the non-guarantor subsidiaries was approximately $133 million as of December 31, 2023. Included in this $133 million is $103 million of indebtedness from the non-guarantor subsidiaries to guarantor subsidiaries, resulting from the dividend of an asset — a note receivable — by a non-guarantor subsidiary to a guarantor subsidiary. Total indebtedness of non-guarantor subsidiaries was approximately $43 million as of January 1, 2023. There was no indebtedness from non-guarantor subsidiaries to guarantor subsidiaries as of January 1, 2023. The Senior Notes can be redeemed on or after December 1, 2023, at specified redemption prices. See Note 9 entitled “Long-Term Debt” in Item 8 of this Report for additional information.

Forward-Looking Statements

The Company expects decreases in the cost of raw materials and freight to continue into fiscal year 2024, due to a stabilizing but still challenging supply chain environment. We expect these impacts will benefit our gross profit margins in 2024. We anticipate that a continuing slow post COVID recovery in China, slow market conditions in the rest of Asia, and significant financial pressures in the commercial office market globally will adversely impact our future performance and demand for our products.

Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. However, the Company’s cash flows from operations can be affected by numerous factors including raw material availability and cost, demand for our products, and other factors described in “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The policies and estimates discussed below are considered by management to be critical to an understanding of our consolidated financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimations about the effects of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events may not develop as forecasted, and the best estimates routinely require adjustment.

Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. Management’s judgment in estimating the undiscounted cash flows based on market conditions and trends, and other industry specific metrics used in determining the fair value is subject to uncertainty. If actual market value is less favorable than that estimated by management, additional write-downs may be required.

Deferred Income Tax Assets and Liabilities. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.

39

Table of Contents

We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short-term and long-term business forecasts to provide insight. Further, our global business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 31, 2023, and January 1, 2023, we had state net operating loss carryforwards of $192.1 million and $162.8 million, respectively. Certain of these state net operating loss carryforwards are reserved with a valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. The remaining year-end 2023 amounts are expected to be fully recoverable within the applicable statutory expiration periods. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.

Goodwill. We review the carrying values of our goodwill annually at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying value of a reporting may exceed its fair value as set forth in Accounting Standards Codification 350 “Intangibles—Goodwill and Other”, as amended by Accounting Standards Update (“ASU”) 2017-04. We test goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. We utilize the present value of expected future cash flows and the guideline public company method to determine the estimated fair value of our reporting units. The present value model requires management to estimate future cash flows, the timing of these cash flows, and a discount rate based on a weighted average cost of capital. The assumptions we use to estimate future cash flows and the development of any forecasts to be used in the fair value determination are subject to inherent risk and judgment. If we determine that the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If we determine that the carrying value of the reporting unit exceeds its estimated fair value, we measure the goodwill impairment charge based on the excess of the reporting unit’s carrying value over its fair value consistent with ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which we adopted on December 30, 2019.

During the fourth quarter of 2023, we performed our annual quantitative goodwill impairment testing. We focused our testing on the Americas reporting unit since it is the only reporting unit with an allocated goodwill balance. The allocated goodwill balances for our EMEA and Asia Pacific reporting units were written off in prior years as a result of goodwill impairment charges. The Company performed limited procedures for our EMEA and Asia Pacific reporting units during the 2023 goodwill testing to facilitate a reconciliation of market capitalization.

The annual quantitative goodwill testing performed in 2023 for our Americas reporting unit was consistent with our prior year methodology. The Company prepared valuations for the Americas reporting unit on both a market comparable methodology and an income methodology, utilizing a combination of the present value of expected future cash flows and the guideline public company method to determine the estimated fair value of the reporting unit. In preparing the valuation, past, present and future expectations of performance were considered, including our expectations for the short-term and long-term impacts of macroeconomic conditions, including inflation, and our expected financial performance, including planned revenue and operating income for the Americas reporting unit. The present value model requires management to estimate future cash flows, the timing of these cash flows, and a discount rate based on a weighted average cost of capital. The discount rate used for the Americas reporting unit was 11.5% in 2023 compared to 13.5% in 2022, which fluctuated based on a risk premium assigned to estimates of expected future performance. There is inherent uncertainty associated with key assumptions and estimates used in our impairment testing, including the impact of macroeconomic conditions.

As a result of our 2023 annual goodwill testing, we determined that the fair value of our Americas reporting unit exceeded its carrying value by 71% at the 2023 measurement date, and therefore no impairment was indicated. The goodwill balance of $105.4 million at December 31, 2023, is allocated entirely to our Americas reporting unit.

We have not made any material changes to our goodwill impairment loss assessment methodology during the past three fiscal years. Currently, we do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses. However, we cannot predict or control market factors, including the impact of macroeconomic conditions and the impact of certain risks inherent to our operations, as described in Item 1A “Risk Factors” of this Annual Report. If actual results are not consistent with our assumptions and estimates, we may be exposed to additional goodwill impairment losses that could be material.

40

Table of Contents

During the fourth quarter of 2022, we performed our annual goodwill quantitative testing. We considered factors such as, but not limited to, our expectations for the short-term and long-term impacts of macroeconomic factors, including ongoing inflation, foreign currency exchange rates, and our expected financial performance, including planned revenue and operating income of each reporting unit. The discount rate used for each reporting unit ranged from 13.5% to 14.0%, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit. For fiscal year 2022, we determined that the carrying value of our EMEA reporting unit exceeded its fair value and that the associated goodwill was impaired. We recorded a goodwill impairment charge of $29.4 million to write off all the goodwill allocated to our EMEA reporting unit as the excess of carrying value over fair value was higher than the recorded amount of goodwill for the reporting unit.

As of the 2022 measurement date, the fair value of our Americas reporting unit exceeded its carrying value by 71%, and the Americas reporting unit was not impaired. The Americas reporting unit had a goodwill balance of $102.4 million at the end of fiscal 2022. The goodwill balance allocated to our Asia-Pacific reporting unit was previously written off in connection with the 2020 goodwill impairment.

During the fourth quarter of 2021, we performed the annual goodwill impairment test consistent with prior years and the methodology described above, and all reporting units that had a goodwill balance were noted to have a fair value that exceeded their carrying value.

See Note 12 entitled “Goodwill and Other Intangible Assets” of Part II, Item 8 of this Annual Report for additional information.

Inventories. We determine the value of inventories using the lower of cost or net realizable value. We write down inventories for the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.

Management’s judgment in estimating our reserves for inventory obsolescence is based on continuous examination of our inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions. While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences may continue to change, and we could experience additional inventory write-downs in the future. Our inventory reserve on December 31, 2023 and January 1, 2023, was $34.0 million and $28.5 million, respectively. To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2023 net income would be higher or lower by approximately $2.4 million, on an after-tax basis.

41

Table of Contents

Pension Benefits. Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While management believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of our plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in our salary continuation plan and our foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The table below represents the changes to the projected benefit obligation as a result of changes in discount rate assumptions:

Allowances for Expected Credit Losses. We maintain allowances for expected credit losses resulting from the inability of customers to make required payments. Estimating the amount of future expected losses requires us to consider historical losses from our customers, as well as current market conditions and future forecasts of our customers’ ability to make payments for goods and services. By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially estimated. Our allowance for expected credit losses on December 31, 2023 and January 1, 2023, was $3.0 million and $4.0 million, respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2023 net income would be higher or lower by approximately $0.2 million, on an after-tax basis, depending on whether the actual collectability was better or worse, respectively, than the estimated allowance.

Product Warranties. We typically provide limited warranties with respect to certain attributes of our carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years, depending on the particular carpet product and the environment in which the product is to be installed. Similar limited warranties are provided on certain attributes of our rubber and LVT products, typically for a period of 5 to 15 years. We typically warrant that any services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product. We record a provision related to warranty costs based on historical experience and future expectations and periodically adjust these provisions to reflect changes in actual experience. Our warranty and sales allowance reserve on December 31, 2023 and January 1, 2023, was $4.3 million and $2.1 million, respectively. Actual warranty expense incurred could vary significantly from amounts that we estimate. To the extent the actual warranty expense differs from our estimates by 10%, our 2023 net income would be higher or lower by approximately $0.3 million, on an after-tax basis, depending on whether the actual expense is lower or higher, respectively, than the estimated provision.

Recent Accounting Pronouncements

Please see Note 2 entitled “Recent Accounting Pronouncements” in Item 8 of this Report for discussion of these items.

42

Table of Contents