# INTERFACE INC (TILE) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from INTERFACE INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/715787/000071578725000006/tile-20241229.htm
Accession: 0000715787-25-000006
Filing date: 2025-02-26
Report date: 2024-12-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TILE/
All MD&A years: /company/TILE/mda/
Previous year: /company/TILE/mda/fy2023/ (FY 2023)
Next year: /company/TILE/mda/fy2025/ (FY 2025)

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 2024, 2023, and 2022, primarily in education, healthcare, public buildings, retail, residential/living, hospitality, transportation, and consumer residential market segments.

Executive Summary

During 2024, we had consolidated net sales of $1,315.7 million, up 4.3% compared to $1,261.5 million in 2023, primarily due to increased customer demand – particularly in the retail and education market segments. Consolidated operating income for 2024 was $134.4 million compared to consolidated operating income of $104.5 million in 2023, primarily due to higher sales volumes and lower raw material costs. Consolidated net income for 2024 was $86.9 million, or $1.48 per diluted share, compared to consolidated net income of $44.5 million, or $0.76 per diluted share, in 2023.

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.

A detailed discussion of our 2024 and 2023 consolidated and segment performance appears below under “Analysis of Results of Operations”.

Cybersecurity Event

As previously disclosed in our current report on Form 8-K filed with the Commission on November 23, 2022, we discovered a cybersecurity attack on November 20, 2022, perpetrated by unauthorized third parties, affecting our IT systems. The investigation of the Cyber Event was completed in fiscal year 2023. We have cyber risk insurance and recovered $5.6 million in insurance proceeds during fiscal year 2024, representing business interruption proceeds and reimbursement of certain costs in connection with the Cyber Event. Of the total insurance proceeds received in fiscal 2024, $4.8 million of business interruption proceeds were recognized as a benefit in other income / expense, net in the consolidated statements of operations and $0.8 million was recognized as a reduction of selling, general and administrative expenses. The insurance claim for the Cyber Event has been closed as of December 29, 2024, and we are not expecting additional proceeds.

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During 2023, the Company incurred approximately $1.1 million 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.

Impact of Macroeconomic Conditions

Disruptions in economic markets due to inflation, high interest rates, the Russia-Ukraine war and the conflict in the Middle East, a still challenging supply chain environment, slow market conditions in certain parts of the globe, the impact of potential tariffs on the demand for our products, fluctuating freight costs, and significant financial pressures in the commercial office market globally, all pose challenges which may adversely affect our future performance. 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 2025. 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.

The Company expects higher production volumes and lower per unit fixed costs in 2025, and anticipates these impacts will benefit our gross profit margin in 2025. We also expect that continuing challenges in supply chain markets will result in higher freight costs to some degree in 2025 - particularly in the first half of 2025. We anticipate that continuing slow market conditions in parts of the globe and significant financial pressures in the commercial office market globally will adversely impact our future performance and demand for our products.

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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 43% in 2024, 46% in 2023, and 47% in 2022. Because we have substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions. In 2024, the weakening of the Euro, Canadian dollar, and Chinese Renminbi against the U.S. dollar had a negative impact on our net sales, partially offset by the strengthening of the British Pound sterling against the U.S. dollar. Currency fluctuations had no material impact to operating income in 2024. 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.

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, Canadian dollars, and other currencies into U.S. dollars have affected our consolidated net sales and operating income during the past three years:

[[GREPCENT_TABLE]]
[["","2024","","2023","","2022"],["","(in millions)"],["Impact of changes in foreign currency on consolidated net sales","$","(1.8)","","","$","1.4","","","$","(58.8)"],["Impact of changes in foreign currency on consolidated operating income","(0.1)","","","(0.6)","","","(8.3)"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2024","","2023","","2022"],["Net sales","100.0","%","","100.0","%","","100.0","%"],["Cost of sales","63.3","","","65.0","","","66.3"],["Gross profit","36.7","","","35.0","","","33.7"],["Selling, general and administrative expenses","26.5","","","26.9","","","25.0"],["Restructuring, asset impairment, other (gains) and charges","\u2014","","","(0.2)","","","0.2"],["Goodwill and intangible asset impairment charge","\u2014","","","\u2014","","","2.8"],["Operating income","10.2","","","8.3","","","5.7"],["Interest/Other expense, net","1.6","","","3.2","","","2.6"],["Income before income tax expense","8.6","","","5.1","","","3.1"],["Income tax expense","2.0","","","1.5","","","1.7"],["Net income","6.6","%","","3.6","%","","1.4","%"]]
[[/GREPCENT_TABLE]]

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 2024, 2023, and 2022 each included 52 weeks.

[[GREPCENT_TABLE]]
[["","Fiscal Year","","Percentage Change"],["","2024","","2023","","2022","","2024 compared with 2023","","2023 compared with 2022"],["","(in thousands)"],["Consolidated net sales","$","1,315,658","","","$","1,261,498","","","$","1,297,919","","","4.3","%","","(2.8)","%"]]
[[/GREPCENT_TABLE]]

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Consolidated net sales for 2024 compared with 2023

For 2024, our consolidated net sales increased $54.2 million (4.3%) compared to 2023, comprised of higher sales volumes (approximately 2.7%) and higher average sales prices (approximately 1.6%). Fluctuations in currency exchange rates had a negative impact on our year-over-year consolidated net sales comparison of approximately $1.8 million, indicating that if currency levels had remained constant year-over-year, our 2024 net sales would have been higher by this amount. On a market segment basis, the sales increase was most significant in the retail, education, residential living, and public buildings market segments partially offset by decreases in the hospitality, corporate office, and consumer residential market segments. See the segment results discussion below for additional information on market segments.

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 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:

[[GREPCENT_TABLE]]
[["","Fiscal Year","","Percentage Change"],["","2024","","2023","","2022","","2024 compared with 2023","","2023 compared with 2022"],["","(in thousands)"],["Consolidated cost of sales","$","832,710","","","$","820,429","","","$","860,186","","","1.5","%","","(4.6)","%"],["Consolidated selling, general and administrative expenses","348,542","","","339,049","","","324,190","","","2.8","%","","4.6","%"]]
[[/GREPCENT_TABLE]]

Consolidated Cost of Sales

For 2024, our consolidated cost of sales increased $12.3 million (1.5%) compared to 2023, primarily due to higher sales partially offset by lower raw material costs. Currency translation had a positive impact on consolidated cost of sales and partially reduced our costs by approximately $1.4 million (0.2%) compared to 2023. As a percentage of net sales, our consolidated cost of sales decreased to 63.3% in 2024 versus 65.0% in 2023. Management believes it is reasonably likely that lower per unit fixed costs due to higher production volumes and plant productivity initiatives will reduce our costs to some degree in 2025, particularly in the first half of 2025. These favorable impacts are expected to be partially offset by higher freight costs in 2025.

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.

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Consolidated Gross Profit

For 2024, consolidated gross profit, as a percentage of net sales, was 36.7% compared to 35.0% for 2023. The increase in gross profit percentage was primarily due to (i) lower costs (approximately 1%) driven by lower raw material costs and lower fixed costs per unit as a result of higher volume and (ii) higher pricing (approximately 1%). Management believes it is reasonably likely that gross profit in 2025 will be positively impacted by lower costs as discussed above.

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%).

Consolidated SG&A Expenses

For 2024, our consolidated SG&A expenses were $348.5 million versus $339.0 million in 2023. Currency translation had no material impact on consolidated SG&A expenses for 2024. Consolidated SG&A expenses increased $9.5 million (2.8%) in 2024 compared to 2023, primarily due to higher people costs of $15.7 million driven by increased variable compensation as a result of higher operating income compared to 2023, partially offset by lower severance costs of $5.6 million driven by employee headcount reduction and cost saving initiatives in the prior year period. As a percentage of net sales, SG&A expenses decreased to 26.5% in 2024 versus 26.9% in 2023.

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.

Restructuring Plan

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. This restructuring plan was completed following the sale of the Thailand facility.

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 2024 and 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.

Interest Expense

For 2024, our interest expense was $23.2 million, versus $31.8 million in 2023, primarily due to lower outstanding term loan borrowings under the Syndicated Credit Facility. Our average borrowing rate under the Syndicated Credit Facility as of December 29, 2024, was 5.62% compared to 6.61% at December 31, 2023.

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.

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Other Income Expense, net

During 2024, other (income) expense, net, was $(2.4) million versus $9.1 million in 2023. The decrease was primarily due to the receipt in 2024 of $4.8 million of business interruption insurance proceeds related to the Cyber Event and $2.4 million of insurance proceeds related to a property casualty loss that occurred in fiscal year 2023. These benefits were partially offset by the recognition of $2.2 million of cumulative translation losses reclassified from accumulated other comprehensive loss due to the substantial liquidation of our foreign subsidiary in Thailand during 2024.

During 2023, $6.2 million of cumulative translation losses were recognized in other (income) expense, net as a result of the substantial liquidation of our foreign subsidiaries in Brazil and Russia.

Tax

For fiscal year 2024, the Company recorded income tax expense of $26.6 million on pre-tax income of $113.6 million, resulting in an effective tax rate of 23.4% compared with income tax expense of $19.1 million on pre-tax income of $63.7 million, resulting in an effective tax rate of 30.1%, for fiscal year 2023. The decrease in the effective tax rate for fiscal year 2024, compared to fiscal year 2023, was primarily due to the release of the valuation allowance on interest expense carryforwards, favorable tax benefits related to share-based compensation, and a favorable tax benefit related to a change in tax rate related to the UK pension plan. These favorable changes were partially offset by a decrease in favorable tax benefits related to the repatriation of previously taxed foreign earnings and utilization of foreign tax benefits.

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.

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.

During fiscal year 2024, the Company implemented a cost center realignment initiative as part of the Company’s efforts to centralize certain global/shared functions. During 2024, SG&A expenses for these global support functions were allocated to adjusted operating income (“AOI”) for each reportable segment consistent with the allocation methodology used to allocate corporate overhead in prior periods. Prior year AOI amounts below were not recast as there was no material impact to the measure of segment profit for each reportable segment. There were no changes to the composition of the Company’s operating or reportable segments.

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:

[[GREPCENT_TABLE]]
[["","Fiscal Year","","Percentage Change"],["","2024","","2023","","2022","","2024 compared with 2023","","2023 compared with 2022"],["","(in thousands)"],["AMS segment net sales","$","800,811","","","$","736,955","","","$","753,740","","","8.7","%","","(2.2)","%"],["AMS segment AOI(1)","106,594","","","87,789","","","102,370","","","21.4","%","","(14.2)","%"]]
[[/GREPCENT_TABLE]]

(1) Includes allocation of corporate SG&A expenses and allocation of global support SG&A expenses as discussed above. Excludes Cyber Event impact, 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.

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AMS Segment Net Sales for 2024 compared with 2023

During 2024, net sales in AMS increased 8.7% versus 2023, comprised of higher sales volume and higher average sales prices. On a market segment basis, the AMS sales increase was most significant in the retail (up 81.5%), education (up 13.5%), public buildings (up 27.9%), and residential living (up 23.3%) market segments partially offset by decreases in the corporate office (down 1.7%), hospitality (down 18.0%), and consumer residential (down 10.4%) market segments.

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 average sales 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.

AMS AOI for 2024 compared with 2023

AOI in AMS increased 21.4% during 2024 compared to 2023. Higher adjusted gross profit in 2024, driven by higher sales, lower raw material costs, and favorable fixed cost absorption contributed to the increase in AMS AOI for the current year. AMS SG&A expenses as a percentage of net sales decreased approximately 0.8% compared to 2023, also contributed to the increase in AOI. As a percentage of net sales, AOI increased to 13.3% in 2024 versus 11.9% in 2023.

AMS AOI for 2023 compared with 2022

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

EAAA Segment – Net Sales and AOI

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

[[GREPCENT_TABLE]]
[["","Fiscal Year","","Percentage Change"],["","2024","","2023","","2022","","2024 compared with 2023","","2023 compared with 2022"],["","(in thousands)"],["EAAA segment net sales","$","514,847","","","$","524,543","","","$","544,179","","","(1.8)","%","","(3.6)","%"],["EAAA segment AOI(1)","34,803","","","28,608","","","30,058","","","21.7","%","","(4.8)","%"]]
[[/GREPCENT_TABLE]]

(1) Includes allocation of corporate SG&A expenses and allocation of global support SG&A expenses as discussed above. Excludes goodwill and intangible asset impairment charges, purchase accounting amortization, Cyber Event impact, Thailand plant closure inventory write-down, 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 2024 compared with 2023

During 2024, net sales in EAAA decreased 1.8% versus 2023, primarily due to lower sales volume. Currency fluctuations had a negative impact of approximately $0.8 million (0.2%) on EAAA net sales for 2024 compared to 2023 due to the weakening of the Euro, Chinese Renminbi, and Australian dollar against the U.S dollar, partially offset by the strengthening of the British Pound sterling against the U.S. dollar. On a market segment basis, the EAAA sales decrease was most significant in the public buildings (down 21%), hospitality (down 24.1%), and healthcare (down 6.8%) market segments, partially offset by an increase in the residential living (up 9.1%) market segment.

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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 an increase in the hospitality (up 11.5%) market segment.

EAAA AOI for 2024 compared with 2023

AOI in EAAA increased 21.7% during 2024 versus 2023. Higher adjusted gross profit in 2024, driven by lower raw material costs partially offset by lower sales volume contributed to the increase in EAAA AOI for the current year. Currency fluctuations had no material impact on EAAA AOI in 2024 compared to 2023. As a percentage of net sales, AOI was 6.8% in 2024 versus 5.5% in 2023.

EAAA AOI for 2023 compared with 2022

AOI in EAAA decreased 4.8% during 2023 versus 2022. Lower adjusted gross profit in 2023, driven by lower sales, inflationary pressures on raw material costs, and unfavorable manufacturing fixed cost absorption on lower production volumes contributed to the decrease in EAAA AOI. 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.

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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, cash flows from operations, cash and cash equivalents, and other sources of liquidity are sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations. 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.

Below are estimates of our material cash requirements for future periods. The short-term period represents payments due within the 12 months following December 29, 2024, and the long-term period represents payments due beyond the short-term period.

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Short-Term","","Long-Term","","Total"],["","","","(in thousands)"],["Long-term debt obligations","$","482","","","$","305,082","","","$","305,564"],["Operating and finance lease obligations","19,820","","","92,314","","","112,134"],["Expected interest payments","16,796","","","49,952","","","66,748"],["Purchase obligations","27,435","","","41,147","","","68,582"],["Pension cash obligations","4,294","","","28,556","","","32,850"],["Total","$","68,827","","","$","517,051","","","$","585,878"]]
[[/GREPCENT_TABLE]]

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 $68.8 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 2025 to be approximately $20 million. We estimate aggregate capital expenditures in 2025 to be approximately $45 million, although we are not committed to this amount. 

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Liquidity

At December 29, 2024, we had $99.2 million in cash. Approximately $3.1 million of this cash was located in the U.S., and the remaining $96.1 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 $96.1 million of cash in foreign jurisdictions, approximately $8.8 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 29, 2024, we had $5.6 million of borrowings outstanding under our Facility, all of which were term loan borrowings. There were no revolving loan borrowings outstanding as of December 29, 2024. Additionally, $0.7 million in letters of credit were outstanding under the Facility at the end of fiscal year 2024. As of December 29, 2024, we had additional borrowing capacity of $299.3 million under the Facility. As of December 29, 2024, the weighted average interest rate on borrowings outstanding under the Facility was 5.62%. As of December 29, 2024, there were no other lines of credit available to the Company.

In addition, as of December 29, 2024, 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.

We have borrowings 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 $171.1 million at December 29, 2024, compared to $163.4 million at December 31, 2023. The increase of $7.7 million was primarily due to the impact of higher net sales as a result of increased customer demand in 2024.

Inventories, net, were $260.6 million at December 29, 2024, compared to $279.1 million at December 31, 2023. The decrease of $18.5 million was primarily due to higher sales, stronger working capital management, and lower raw material costs during the current year.

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Analysis of Cash Flows

The following table presents a summary of cash flows for fiscal years 2024, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","Fiscal Year"],["","2024","","2023","","2022"],["","(in thousands)"],["Net cash provided by (used in):"],["Operating activities","$","148,430","","","$","142,034","","","$","43,061"],["Investing activities","(30,374)","","","(19,514)","","","(18,437)"],["Financing activities","(125,234)","","","(111,564)","","","(19,490)"],["Effect of exchange rate changes on cash","(4,094)","","","1,978","","","(4,822)"],["Net change in cash and cash equivalents","(11,272)","","","12,934","","","312"],["Cash and cash equivalents at beginning of period","110,498","","","97,564","","","97,252"],["Cash and cash equivalents at end of period","$","99,226","","","$","110,498","","","$","97,564"]]
[[/GREPCENT_TABLE]]

We ended 2024 with $99.2 million in cash, a decrease of $11.3 million during the year. The decrease was primarily due to the following:

•Cash provided by operating activities was $148.4 million for 2024, which represents an increase of $6.4 million compared to 2023. The increase in operating cash flows was primarily due to higher sales during 2024 resulting in a source of cash from lower inventory balances partially offset by a use of cash as a result of higher accounts receivable. The 2023 comparable period includes a source of cash for accounts receivable as delayed customer billings related to the 2022 Cyber Event were collected in 2023.

•Cash used in investing activities was $30.4 million for 2024, which represents an increase of $10.9 million compared to 2023. The increase was primarily attributable to an increase in capital expenditures due to increased capital investment partially offset by $2.4 million of insurance proceeds related to a 2023 property casualty loss. The 2023 comparable period includes proceeds of approximately $6.6 million from the sale of the Company’s Thailand real estate.

•Cash used in financing activities was $125.2 million for 2024, which represents an increase of $13.7 million compared to 2023. The increase was primarily attributable to higher prepayments of term loan borrowings during 2024 compared to the 2023 comparable period.

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.

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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.

•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.

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 2024 and 2023 pursuant to this program. As of December 29, 2024, 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 29, 2024, 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.

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.

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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 certain 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 certain 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. 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 29, 2024, 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.

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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 $573 million for fiscal year 2024, $584 million for fiscal year 2023, and $597 million for fiscal year 2022. Total indebtedness of the non-guarantor subsidiaries was approximately $102 million and $133 million as of December 29, 2024, and December 31, 2023, respectively. 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.

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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.

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 29, 2024, and December 31, 2023, we had state net operating loss carryforwards of $190.1 million and $192.1 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 2024 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 unit 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”.

During the fourth quarter of 2024 and 2023, we performed our annual quantitative goodwill impairment testing. We focused our testing on the Americas reporting unit because 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 2024 and 2023 goodwill testing to facilitate a reconciliation of market capitalization.

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The annual quantitative goodwill testing performed in 2024 and 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, 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 10.5% in 2024 compared to 11.5% in 2023, which fluctuated based on a lower 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 2024 annual goodwill testing, we determined that the fair value of our Americas reporting unit exceeded its carrying value by 132% at the 2024 measurement date, and therefore no impairment was indicated. The goodwill balance of $99.9 million at December 29, 2024, is allocated entirely to our Americas reporting unit.

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, was allocated entirely to our Americas reporting unit.

During the fourth quarter of 2022, we performed our annual goodwill quantitative testing for each reporting unit. 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 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.

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.

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 29, 2024 and December 31, 2023, was $38.3 million and $34.0 million, respectively. To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 2024 net income would be higher or lower by approximately $2.9 million, on an after-tax basis.

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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:

[[GREPCENT_TABLE]]
[["Foreign Defined Benefit Plans","Increase (Decrease) in Projected Benefit Obligation"],["","(in millions)"],["1% increase in actuarial assumption for discount rate","$","(19.7)"],["1% decrease in actuarial assumption for discount rate","25.3"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Domestic Salary Continuation Plan","Increase (Decrease) in Projected Benefit Obligation"],["","(in millions)"],["1% increase in actuarial assumption for discount rate","$","(1.6)"],["1% decrease in actuarial assumption for discount rate","1.9"]]
[[/GREPCENT_TABLE]]

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 29, 2024 and December 31, 2023, was $3.8 million and $3.0 million, respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2024 net income would be higher or lower by approximately $0.3 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 29, 2024 and December 31, 2023, was $5.3 million and $4.3 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 2024 net income would be higher or lower by approximately $0.4 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.

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