-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R3tJFhowq+KXSmt75oG1JYBFNJd67xS8V1H3kBlUooR6JBzxE4OCQIi3CLFaYYRG qSuoHMTuNqB01Ht68hBKAA== 0000950144-97-005783.txt : 19970515 0000950144-97-005783.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950144-97-005783 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERFACE INC CENTRAL INDEX KEY: 0000715787 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 581451243 STATE OF INCORPORATION: GA FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12016 FILM NUMBER: 97605521 BUSINESS ADDRESS: STREET 1: 2859 PACES FERRY RD STREET 2: STE 2000 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 4043196471 FORMER COMPANY: FORMER CONFORMED NAME: INTERFACE FLOORING SYSTEMS INC DATE OF NAME CHANGE: 19870817 10-Q 1 INTERFACE, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 For Quarterly Period Ended March 30, 1997 Commission File Number 0-12016 ------------------------------ INTERFACE, INC. --------------- (Exact name of registrant as specified in its charter) GEORGIA 58-1451243 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339 --------------------------------------------------------- (Address of principal executive offices and zip code) (770) 437-6800 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Shares outstanding of each of the registrant's classes of common stock at May 9, 1997: Class Number of Shares ----- ---------------- Class A Common Stock, $.10 par value per share 20,844,050 Class B Common Stock, $.10 par value per share 2,719,838 2 INTERFACE, INC. INDEX PAGE PART I. FINANCIAL INFORMATION ---- Item 1. Financial Statements 3 Balance Sheets - March 30, 1997 and December 29, 1996 3 Statements of Income - Three Months 4 Ended March 30, 1997 and March 31, 1996 Statements of Cash Flows - Three Months 5 Ended March 30, 1997 and March 31, 1996 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 16
- 2 - 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
MARCH 30, DECEMBER 29, ASSETS 1997 1996 ------ ---- ---- CURRENT ASSETS: Cash and Cash Equivalents $ - $ 8,762 Accounts Receivable 157,562 167,817 Inventories 152,956 146,678 Deferred Tax Asset 7,002 7,057 Prepaid Expenses 25,833 22,986 -------- -------- TOTAL CURRENT ASSETS 343,353 353,300 PROPERTY AND EQUIPMENT, less accumulated depreciation 210,964 208,791 EXCESS OF COST OVER NET ASSETS ACQUIRED 244,850 249,070 OTHER ASSETS 55,608 51,385 -------- -------- $854,775 $862,546 ======== ======== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY ------------------------------------------- CURRENT LIABILITIES: Notes Payable $ 12,186 $ 14,918 Accounts Payable 70,643 74,960 Accrued Expenses 69,989 70,919 Current Maturities of Long-Term Debt 2,206 2,919 -------- -------- TOTAL CURRENT LIABILITIES 155,024 163,716 LONG-TERM DEBT, less current maturities 255,892 254,353 SENIOR SUBORDINATED NOTES 125,000 125,000 DEFERRED INCOME TAXES 23,403 23,484 ------- -------- TOTAL LIABILITIES 559,319 566,553 ------- -------- Minority Interest 3,125 3,125 Redeemable Preferred Stock - 19,750 Common Stock 2,698 2,536 Additional Paid-In Capital 148,014 124,557 Retained Earnings 173,182 166,828 Foreign Currency Translation Adjustment (13,817) (3,057) Treasury Stock, 3,600 Class A Shares, at Cost (17,746) (17,746) -------- -------- $854,775 $862,546 ======== ========
See accompanying notes to consolidated condensed financial statements. - 3 - 4 INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ----------------------- MARCH 30, MARCH 31, 1997 1996 -------- -------- Net Sales $257,345 $205,017 Cost of Sales 174,432 142,104 -------- -------- Gross Profit on Sales 82,913 62,913 Selling, General and Administrative Expenses 62,956 49,342 -------- -------- Operating Income 19,957 13,571 Other (Expense) Income - Net (9,543) (7,591) -------- -------- Income before Taxes on Income 10,414 5,980 Taxes on Income 4,061 2,272 -------- -------- Net Income 6,353 3,708 Less: Preferred Dividends -- 437 -------- -------- Net Income Applicable to Common Shareholders $ 6,353 $ 3,271 ======== ======== Primary Earnings Per Common Share $ 0.28 $ 0.18 ======== ======== Weighted Average Common Shares Outstanding 22,584 18,475 ======== ========
See accompanying notes to consolidated condensed financial statements. - 4 - 5 INTERFACE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED -------------------------- MARCH 30, MARCH 31, 1997 1996 -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income $ 6,353 $ 3,708 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 10,023 8,247 Deferred income taxes 40 14 Cash provided by (used for): Accounts receivable 6,698 (10,576) Inventories (8,633) (6,569) Prepaid and other (8,578) (3,669) Accounts payable and accrued expenses (7,786) 6,264 -------- -------- (1,883) (2,581) -------- -------- INVESTING ACTIVITIES: Capital expenditures (11,878) (10,111) Acquisitions of businesses - (18,969) Other (3,257) (4,978) -------- -------- (15,135) (34,058) -------- -------- FINANCING ACTIVITIES: Net borrowing (reduction) of long-term debt 4,455 34,176 Issuance of common stock 3,869 490 Dividends paid - (1,547) -------- -------- 8,324 33,119 -------- -------- Net cash provided by (used for) operating, investing and financing activities (8,694) (3,520) Effect of exchange rate changes on cash (68) (2) -------- -------- CASH AND CASH EQUIVALENTS: Net increase (decrease) during the period (8,762) (3,522) Balance at beginning of period 8,762 8,750 -------- -------- Balance at end of period $ - $ 5,228 -------- --------
See accompanying notes to consolidated condensed financial statements. - 5 - 6 INTERFACE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 - CONDENSED FOOTNOTES As contemplated by the Securities and Exchange Commission (the "Commission") instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the notes to the Company's year-end financial statements contained in its Annual Report to Shareholders for the fiscal year ended December 29, 1996, as filed with the Commission. The financial information included in this report has been prepared by the Company, without audit, and should not be relied upon to the same extent as audited financial statements. In the opinion of management, the financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. NOTE 2 - INVENTORIES Inventories are summarized as follows:
MARCH 30, DECEMBER 29, 1997 1996 ---- ---- Finished Goods $ 89,877 $ 81,034 Work-in-Process 30,360 30,464 Raw Materials 32,719 35,180 -------- -------- $152,956 $146,678 ======== ========
NOTE 3 - BUSINESS ACQUISITIONS During fiscal 1996, the Company acquired 100% of the outstanding capital stock of fifteen floorcovering contractors -- Landry's Commercial Flooring Co., Inc., based in Oregon, Reiser Associates, Inc., based in Texas, Earl W. Bentley Operating Co., Inc., based in Oklahoma, Quaker City International, Inc., based in Pennsylvania, Superior Holding Inc., based in Texas, Flooring Consultants, Inc., based in Arizona, ParCom, Inc., based in Virginia, Congress Flooring Corp., based in Massachusetts, Southern Contract Systems, Inc., based in Georgia, B. Shehadi & Sons, Inc., based in New Jersey, A & F Installation, Inc., based in New Jersey, Lasher/White Carpet Co., Inc., based in New York; Oldtown Carpet Center, Inc., based in North Carolina; Architectural Floors, a division of Continental Office Furniture Corp., based in Ohio; and Floor Concepts, Inc., based in Maryland. As consideration, the Company issued 2,674,906 shares of Class A common stock valued at approximately $19.3 million, $.8 million in 7% Notes and $23.0 million in cash. All the acquisitions were accounted for as purchases, accordingly, the results of operations for the acquired companies are included in the Company's consolidated financial statements from the date of the acquisitions. The excess of the purchase price over the fair value of the net liabilities was approximately $33.9 million and is being amortized over 25 years. - 6 - 7 In February 1996, the Company acquired the outstanding common stock of Renovisions, Inc., a nationwide installation services firm (based in Georgia) that has pioneered a new method of carpet replacement, for approximately $4 million in cash and $1 million in guaranteed payments due February 1, 1997. The acquisition was accounted for as a purchase and, accordingly, the results of operations for Renovisions are included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price over the fair value of net assets was approximately $4.3 million, and is being amortized over 25 years. In February 1996, the Company acquired the outstanding common stock of C-Tec, Inc., a Michigan based producer of raised/access flooring systems, for approximately $8.8 million (comprised of $4.5 million in cash and $4.3 million in 6% subordinated convertible notes). The acquisition was accounted for as a purchase and, accordingly, the results of operations for C-Tec are included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price over the fair value of net liabilities was approximately $3.1 million, and is being amortized over 25 years. NOTE 4 - EARNINGS PER SHARE AND DIVIDENDS Earnings per share are computed by dividing net income applicable to common shareholders by the combined weighted average number of shares of Class A and Class B Common Stock outstanding during the particular reporting period. The earnings computation does not give effect to the negligible dilutive impact of outstanding stock options. The Series A Cumulative Convertible Preferred Stock issued in June 1993 is not considered to be a common stock equivalent because at the date of issuance the stated rate of interest was greater than 66 2/3% of the AAA bond rate. In computing primary earnings per share, the preferred stock dividend of 7% per annum reduces income applicable to common shareholders. For the purposes of computing earnings per share and dividends paid per share, the Company is treating as treasury stock (and therefore not outstanding) the shares that are owned by a wholly-owned subsidiary (3,600,000 Class A shares, recorded at cost). NOTE 5 - REDEEMABLE PREFERRED STOCK In December 1996, the Company notified its Series A preferred shareholders that it intended to redeem up to $10 million of the approximately $19.7 million (face value) Series A Preferred Stock then outstanding. As a result of this notice, the Series A preferred shareholders, with one exception, instead elected to convert their shares of Series A Preferred Stock into an aggregate of approximately 1,360,000 shares of the Company's Class A Common Stock. The shares of Series A Preferred Stock owned by the non-converting shareholder were redeemed for approximately $6,000. - 7 - 8 NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS The Guarantor Subsidiaries, which consist of the Company's principal domestic subsidiaries, are guarantors of the Company's 9.5% senior subordinated notes due 2005. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Securities and Exchange Commission. INTERFACE, INC. AND SUBSIDIARIES NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 1997 INTERFACE, CONSOLIDATION NON- INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ ------------ ------- ------ (IN THOUSANDS) Net sales $204,115 $ 82,267 $ 0 (29,037) $257,345 Cost of sales 147,116 56,353 0 (29,037) 174,432 --------- --------- --------- --------- --------- Gross profit on sales 56,999 25,914 0 0 82,913 Selling, general and 42,190 16,702 4,064 0 62,956 administrative expenses --------- --------- --------- --------- --------- Operating income 14,809 9,212 (4,064) 0 19,957 Other expense (income) Interest Expense 1,662 1,111 5,618 0 8,391 Other 1,556 664 (1,066) 0 1,154 --------- --------- --------- --------- --------- Total other expense 3,218 1,775 4,552 0 9,545 --------- --------- --------- --------- --------- Income before taxes on income and equity in income of subsidiaries 11,591 7,437 (8,616) 0 10,412 Taxes on income 3,774 2,703 (2,418) 0 4,059 Equity in income of subsidiaries 0 0 12,551 (12,551) 0 --------- --------- --------- --------- --------- Net income before extraordinary items 7,817 4,734 6,353 (12,551) 6,353 Extraordinary loss (less applicable taxes) 0 0 0 0 0 --------- --------- --------- --------- --------- Net income 7,817 4,734 6,353 (12,551) 6,353 Preferred stock dividends 0 0 0 0 0 --------- --------- --------- --------- --------- Net income applicable to common shareholders $ 7,817 $ 4,734 $ 6,353 ($12,551) $ 6,353 ========= ========= ========= ========= =========
- 8 - 9
MARCH 30, 1997 CONSOLIDATION NON- INTERFACE, INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ ------------ ------- ------ (in thousands) ASSETS Current Assets: Cash and cash equivalents 1,517 4,960 (6,477) 0 0 Accounts receivable 112,048 59,363 (13,849) 0 157,562 Inventories 106,610 46,048 298 0 152,956 Miscellaneous 9,727 13,320 9,788 0 32,835 -------- -------- --------- -------- -------- Total current assets 229,902 123,691 (10,240) 0 343,353 Property and equipment, less accumulated depreciation 147,099 58,112 5,753 0 210,964 Investment in subsidiaries 108,977 17,760 381,670 (508,407) 0 Miscellaneous 152,610 43,115 378,702 (518,819) 55,608 Excess of cost over net assets acquired 172,209 68,579 4,062 0 244,850 -------- -------- --------- -------- -------- 810,797 311,257 759,947 (1,027,226) 854,775 ======== ======== ========= ========== --------- LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities: Notes payable 10,849 1,337 0 0 12,186 Accounts payable 45,707 22,776 2,160 0 70,643 Accrued expenses 46,177 27,398 (3,586) 0 69,989 Current maturities of long-term debt 2,206 0 0 0 2,206 -------- -------- -------- -------- -------- Total current liabilities 104,939 51,511 (1,426) 0 155,024 Long-term debt, less current maturities 240,939 43,457 304,271 (332,775) 255,892 Senior subordinated notes 0 0 125,000 0 125,000 Deferred income taxes 12,901 963 9,539 0 23,403 Minority interests 3,125 0 0 0 3,125 -------- -------- -------- -------- -------- Total liabilities 361,904 95,931 437,384 (332,775) 562,444 Redeemable preferred stock 57,891 0 0 (57,891) 0 Common stock 81,704 102,199 2,698 (183,903) 2,698 Additional paid-in capital 179,073 11,030 148,014 (190,103) 148,014 Retained earnings 135,294 108,412 173,812 (244,336) 173,182 Foreign currency translation adjustment (5,071) (6,313) (1,961) (472) (13,817) Treasury stock 0 0 0 (17,746) (17,746) -------- -------- -------- -------- -------- 810,795 311,259 759,947 (1,027,226) 854,775 ======== ======== ======== ========== ========
- 9 - 10
FOR THE THREE MONTHS ENDED MARCH 30, 1997 INTERFACE, CONSOLIDATION NON- INC. AND GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS ------------ ------------ ------------ ------- ------ (IN THOUSANDS) Cash flows from operating activities: 15,612 (9,727) (7,768) 0 (1,883) ------ ------ ------- --- -------- Cash flows from investing activities: Purchase of plant and equipment (8,270) (2,019) (1,589) 0 (11,878) Acquisitions, net of cash acquired 0 0 0 0 0 Other 0 0 (3,257) 0 (3,257) ------ ------ ------- --- -------- Net cash provided by (used in) investing activities (8,270) (2,019) (4,846) 0 (15,135) ------ ------ ------- ------- Cash flows from financing activities: Net borrowings (repayments) (9,306) 11,983 1,778 0 4,455 Proceeds from issuance of common stock 0 0 3,869 0 3,869 Cash dividends paid 0 0 0 0 0 Other 0 0 0 0 0 ------ ------ ------- --- -------- Net cash provided by (used in) financing activities (9,306) 11,983 5,647 0 8,324 ------ ------ ------- --- -------- Effect of exchange rate change on cash 0 (68) 0 0 (68) ------ ------ ------- --- -------- Net increase (decrease) in cash (1,964) 169 (6,967) 0 (8,762) Cash at beginning of year 3,481 4,791 490 0 8,762 ------ ------ ------- --- -------- Cash at end of year 1,517 4,960 (6,477) 0 0 ====== ====== ======= === ========
- 10 - 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS. For the three month period ended March 30, 1997, the Company's net sales increased $52.3 million (26.0%), compared with the same period in 1996. The increase was primarily attributable to (i) increased sales volume in the Company's floorcovering operations in the United States (associated in part with the acquisitions of the commercial floorcovering dealers in the Company's Re:Source Americas network) and China, (ii) increased sales volume in the Company's interior fabrics operations in Continental Europe and Australia and (iii) increased sales volume in the Company's specialty products division associated with the acquisition of C-Tec, Inc. in February 1996. These increases were offset somewhat by a weakening of certain key currencies (particularly the British pound sterling, Dutch guilder and Japanese yen) against the U.S. dollar, the Company's reporting currency. Cost of sales, as a percentage of sales, decreased slightly to 67.8%, for the three month period ended March 30, 1997, when compared to 69.3% for the same period in 1996. The Company recognized a decrease in manufacturing costs in its floorcovering operations as a result of further benefits obtained from the Company's mass customization production strategy and its "war-on-waste" initiative, which have continued to provide manufacturing efficiencies as well as a shift to higher margin products. In addition, the Company achieved improved pricing in its floorcovering operations. These benefits were somewhat offset by the acquisitions of C-Tec and the commercial floorcovering dealers comprising the Company's distribution network, which historically had higher cost of sales ratios than the Company. Selling, general and administrative expenses as a percentage of net sales increased slightly to 24.5% for the three month period ended March 30, 1997, compared to 24.1% for the same period in 1996. The increase for the three month period was attributable to (i) administrative expenses associated with continued building of an infrastructure to manage the Re:Source Americas network, (ii) increased marketing and sampling expenses in the Company's floorcovering operations associated with the introduction of new products as the Company moved to implement the mass customization strategy in its European and Asia-Pacific operations, and continued to impelement such strategy in its U.S. operations. The increase was somewhat offset by the acquisitions of the commercial floorcovering dealers comprising the Company's distribution network, which historically had lower SG&A ratios than the Company. For the three month period ended March 30, 1997, the Company's other expense increased $1.9 million compared to the same period in 1996, primarily due to an increase in bank debt incurred as a result of the Company's acquisitions. As a result of the aforementioned factors, the Company's net income increased 94.0% to $6.4 million for the three month period ended March 30, 1997, compared to the same period in 1996. This increase is also partly due to the Company no longer having to pay preferred dividends as a result of the elimination of its Series A Preferred Stock in December 1996. - 11 - 12 LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the three month period ended March 30, 1997 have been (i) $ 11.9 million for additions to property and equipment in the Company's manufacturing facilities, and (ii) $3.3 million related to various deposits and other long-term assets. These uses were funded primarily by $4.5 million from long-term financing and $3.9 million from the issuance of common stock. Cash provided by operating activities increased to ($1.9) million during the three month period ended March 30, 1997 from ($2.6) million during the corresponding period in the prior year. This increase was caused primarily by a decrease in accounts receivable resulting from the sale of additional domestic receivables under the Company's securitization program. This decrease was somewhat offset by an increase in inventories and prepaid expenses which are traditionally paid during the first quarter. The Company, as of March 30, 1997, recognized a $ 10.8 million decrease in foreign currency translation adjustment compared to that of December 29, 1996. The decrease was associated primarily with the Company's investments in subsidiaries located in the United Kingdom and Continental Europe. The translation adjustment to shareholders' equity was converted by the guidelines of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 52. The Company employs a variety of off-balance sheet financial instruments, including foreign currency swap agreements and foreign currency exchange contracts, to reduce its exposure to adverse fluctuations in interest and foreign currency exchange rates. At March 30, 1997, the Company had approximately $40 million (notional amount) of foreign currency hedge contracts outstanding, consisting principally of currency swap contracts to hedge firmly committed Dutch guilder and Japanese yen currency revenues. At March 30, 1997, the Company utilized interest rate swap agreements to effectively convert approximately $73 million of variable rate debt to fixed rate debt. The interest rate swap agreements have maturity dates ranging from nine to twenty-four months. The Company continually monitors its position with, and the credit quality of, the financial institutions which are counterparties to its off-balance sheet financial instruments and does not currently anticipate nonperformance by the counterparties. Management believes that the cash provided by operations and available under long-term loan commitments will provide adequate funds for current commitments and other requirements in the foreseeable future. -12- 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not aware of any material pending legal proceedings involving it or any of its property. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS Many of the matters discussed in this Quarterly Report on Form 10-Q and in the Company's other reports and filings with the Commission are forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statement. In addition to various other matters discussed elsewhere in this report and in the Company's other reports and filings with the Commission, the following is a nonexclusive list of factors that could cause actual results to differ materially: Substantial Indebtedness The Company's indebtedness is substantial in relation to its shareholders' equity. As of March 30, 1997, the Company's total long-term debt, (net of current portion), and its 9.5% senior subordinated notes due 2005, totaled $380.9 million or approximately 45% of its total capitalization. The Company's indebtedness could have several important consequences, including but not limited to the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service requirements on its indebtedness and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or to refinance indebtedness or for general corporate purposes may be impaired; (iii) the Company's leverage may increase the effects of economic downturns on it and limit its ability to withstand competitive pressures; and (iv) the Company's ability to capitalize on significant business opportunities may be limited. -13- 14 Restrictions Imposed by Terms of Indebtedness The terms of the Company's outstanding indebtedness restrict the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of their assets. They also require the Company to meet certain financial tests and comply with certain other reporting, affirmative and negative covenants. In an event of default under such indebtedness, the lenders thereunder could elect to declare all amounts borrowed, together with accrued interest, to be immediately due and payable and the lenders under the Company's credit agreement could terminate all commitments thereunder. If any such indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full such indebtedness and the other indebtedness of the Company. Holding Company Structure The Company derives all of its operating income and cash flow from its subsidiaries. The Company must rely upon cash distributions from its subsidiaries to generate the funds necessary to meet its obligations. Although there currently are no material restrictions on the Company's ability to control its receipt of dividends or other payments from its subsidiaries, there can be no assurance that the Company will not in the future be subject to legal and/or contractual restrictions which restrict its ability to do so, including but not limited to those factors discussed in "Risks of Foreign Operations" below. In addition, the participation by the Company and certain of its subsidiaries in an accounts receivable securitization program affects the Company's receipt of certain collections on accounts receivable that are covered by that program. -14- 15 Cyclical Nature of Industry Sales of the Company's principal products are related to the construction and renovation of commercial and institutional buildings. Such activity is cyclical and can be affected by the strength of a country's general economy, prevailing interest rates and other factors that lead to cost control measures by businesses and other users of commercial or institutional space. The effects of such cyclicality upon the new construction sector of the market tends to be more pronounced than its effects upon the renovation sector. Although the predominant portion of the Company's sales are generated from the renovation sector, any such adverse cycle, in either sector of the market, would lessen the overall demand for commercial interiors products, which could impair the Company's growth. Reliance on Key Personnel The Company believes that its continued success will depend to a significant extent upon the efforts and abilities of its senior management executives, particularly Ray C. Anderson, Chairman of the Board and Chief Executive Officer; Charles R. Eitel, President and Chief Operating Officer; and Brian L. DeMoura, Senior Vice President of the Company. Each of Messrs. Anderson, Eitel and DeMoura recently signed employment agreements with the Company containing certain covenants of non-competition. In addition, the Company relies significantly on the leadership of its design staff by David Oakey of the design firm Roman Oakey, Inc., which provides product design/production engineering services to the Company under a consulting contract. The loss of all or some of such personnel could have an adverse impact on the Company. -15- 16 Risks of Foreign Operations The Company has substantial international operations. In fiscal 1996, approximately 35% of the Company's revenues and a significant portion of the Company's production were outside the United States, primarily in Europe, and the Company's corporate strategy includes the expansion of its international business on a worldwide basis. As a result, the Company's operations are subject to various political, economic and other uncertainties, including risks of restrictive taxation policies, foreign exchange restrictions, changing political conditions and governmental regulations. The Company also receives a substantial portion of its revenues in currencies other than U.S. Dollars, which makes it subject to the risks inherent in currency translations. Although the Company's ability to manufacture and ship products from facilities in several foreign countries reduces the risks of foreign currency fluctuations it might otherwise experience, and the Company also engages from time to time in hedging programs intended to further reduce those risks, the scope and volume of the Company's global operations make it impossible to eliminate completely all foreign currency translation risks as a factor for the Company's financial results. Reliance on Petroleum-Based Raw Materials Petroleum-based products comprise the predominant portion of the cost of raw materials used by the Company in manufacturing. While the Company generally attempts to match cost increases with corresponding price increases, large increases in the cost of such petroleum-based raw materials could adversely affect the Company if the Company were unable to pass through to its customers such increases in raw material costs. Reliance on Third Party for Supply of Fiber E. I. DuPont de Nemours and Company ("DuPont") currently supplies a significant percentage of the Company's requirements for synthetic fiber, the principal raw material used in the Company's carpet products. DuPont also competes with the Company's Re:Source Americas network through DuPont's own distribution channel and aligned carpet mills. While the Company believes that there are adequate alternative sources of supply from which it could fulfill its synthetic fiber requirements, the unanticipated termination or interruption of the supply arrangement with DuPont could have a material adverse effect on the Company because of the cost and delay associated with shifting more business to another supplier. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3.1 Articles of Incorporation (composite as of September 8, 1988) (included as Exhibit 3.1 to the Company's annual report on Form 10-K for the year ended January 3, 1993 previously filed with the Commission and incorporated herein by reference) and Articles of Amendment (Series A Preferred Stock Designation), dated June 17, 1993 (included as Exhibit 4.1 to the Company's current report on Form 8-K, filed with the Commission on July 7, 1993 and incorporated herein by reference). 3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the quarter ended April 1, 1990, previously filed with the Commission and incorporated herein by reference). 4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Articles of Incorporation, as amended, and Bylaws defining the rights of holders of Common Stock of the Company. 4.2 Indenture governing the Company's 9.5% Senior Subordinated Notes due 2005, dated as of November 15, 1995, among the Company, certain U.S. subsidiaries of the Company, as Guarantors, and First Union National Bank of
-16- 17 Georgia, as Trustee (included as Exhibit 4.1 to the Company's registration statement on Form S-4, File No. 33-65201, previously filed with the Commission and incorporated herein by reference). 4.3 Registration Rights Agreement dated as of November 21, 1995, among the Company, certain subsidiaries of the Company as Guarantors and the Initial Purchasers of the Company's Notes (included as Exhibit 4.3 to the Company's registration statement on Form S-4, File No. 33-65201, previously filed with the Commission and incorporated herein by reference). 4.4 Form of Exchange Note (included as part of Exhibit 4.2). 10.1 Form of Salary Continuation Agreement 27.1 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended March 30, 1997. - 17 - 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERFACE, INC. Date: May 13, 1997 By:/s/ Daniel T. Hendrix --------------------- Daniel T. Hendrix Senior Vice President (Principal Financial Officer) -18- 19 EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT SEQUENTIAL NUMBER PAGE NO. 10.1 Form of Salary Continuation Agreement 27.1 Financial Data Schedule (for SEC use only)
-19- EX-10.1 2 FORM OF SALARY CONTINUATION AGREEMENT 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of the 1st day of April, 1997, by and between INTERFACE, INC., a corporation organized under the laws of the State of Georgia, U.S.A. (the "Company"), and RAY C. ANDERSON, a resident of Atlanta, Georgia ("Executive"). WITNESSETH: WHEREAS, the parties hereto entered into an employment agreement, effective as of August 1, 1995, setting forth the terms of Executive's employment with the Company (the "Prior Agreement"); WHEREAS, the parties desire to continue the employment arrangement and to modify the Prior Agreement in certain respects; and WHEREAS, the terms of this Agreement, which continues, amends and restates the Prior Agreement in its entirety, reflect the modified terms of employment which the parties desire to have govern their employment relationship commencing on the date hereof. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. Subject to the terms and conditions of this Agreement, Executive shall be employed by the Company as its Chairman and Chief Executive Officer, and shall perform such duties and functions for the Company and its subsidiaries and affiliates as shall be specified from time to time by the Board of Directors of the Company; Executive hereby accepts such employment and agrees to perform such executive duties as may be assigned to Executive. Executive may be relocated, Executive's titles and duties may be changed, and Executive may be promoted to a higher position within the Company, but Executive will not be demoted or given lesser titles. 2. Duties. Executive shall devote his full business related time and best efforts to accomplishing such executive duties at such locations as may be requested by the Board of Directors of the Company. 3. Avoidance of Conflict of Interest. While employed by the Company, Executive shall not engage in any other business enterprise without the prior written consent of the Company. Without limiting the foregoing, Executive shall not serve as a principal, partner, employee, officer or director of, or consultant to, any other business or entity conducting business for profit (other than as a director of NationsBank Corporation and Royal Ten Cate (USA), Inc.) without the prior written approval of the Company. In addition, under no circumstances will Executive have any financial interest in any competitor of the Company; provided, however, Executive may invest in no more 2 than one percent of the outstanding stock or securities of any competitor, the stock or securities of which are traded on a national stock exchange of any country. 4. Term. The duration of this Agreement (the "term") shall be for a rolling, two-year term commencing on the date hereof, and shall be deemed automatically (without further action by either the Company or Executive) to extend each day for an additional day such that the remaining term of the Agreement shall continue to be two years; provided, however, that on Executive's 63rd birthday, this Agreement shall cease to extend automatically and, on such date, the remaining term of this Agreement shall be two years; and, provided further, the Company may, by notice to Executive, cause this Agreement to cease to extend automatically and, upon such notice, the term of this Agreement shall be two years following such notice. 5. Termination. Executive's employment with the Company may be terminated as follows: (a) Voluntary Termination. Executive may voluntarily terminate his employment hereunder at any time, effective 90 days after delivery to the Company of Executive's signed, written resignation; the Company may accept said resignation and pay Executive in lieu of waiting for passage of the notice period. (b) Termination by Company. Subject to the terms of Sections 5(c) and (d) below, the Company may terminate Executive's employment hereunder, in its sole discretion, whether with or without "just cause", at any time upon written notice to Executive. (c) Termination Without Just Cause. If, prior to the end of the term of this Agreement, the Company terminates Executive's employment without "just cause" (as defined in subsection (d) below), Executive shall be entitled to receive, as damages payable as a result of, and arising from, the Company's breach of this Agreement, the compensation and benefits set forth in clauses (i) through (vi) below. The time periods for which compensation and benefits will be provided with respect to (i) through (iv) below is referred to herein as the "Continuation Period", which means the time period remaining from the date of Executive's termination of employment to the end of the remaining term of this Agreement as provided in Section 4 above. Except to the extent provided in clause (x) hereof, Executive shall have no duty to mitigate any of the damages payable hereunder. The fact that Executive is eligible for retirement, including early retirement, under applicable retirement plans or his Salary Continuation Agreement (see clause (vi) below) at the time of Executive's termination shall not make Executive ineligible to receive benefits under this Section 5(c). (i) Salary. Executive will continue to receive his current salary (subject to withholding of all applicable taxes) for the Continuation Period in the same manner as it was being paid as of the date of termination. For purposes hereof, Executive's "current salary" shall be the highest rate in effect during the six-month period prior to Executive's termination. 2 3 (ii) Bonuses and Incentives. Executive shall receive bonus payments from the Company for the Continuation Period in an amount for each calendar month during such period equal to one-twelfth of the average of the bonuses paid to Executive for the two calendar years immediately preceding the year in which such termination occurs ("Average Bonus"). Executive shall also receive a prorated bonus for the year in which such termination occurs equal to the Average Bonus multiplied by the number of days Executive worked in such year divided by 365 days. Said prorated bonus shall be paid within 30 days of the date of termination. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision; provided, however, if the amount of the bonus for such prior year has not yet been determined, the bonus shall be an amount not less than the Average Bonus. (iii) Health and Life Insurance Coverages. The health and life insurance benefit coverages (including any executive medical and/or life insurance plans) provided to Executive at Executive's date of termination shall be continued for the Continuation Period by the Company at its expense at the same level and in the same manner as if Executive's employment had not terminated (subject to the customary changes in such coverages upon Executive's retirement, reaching age 65 or similar events). Any additional coverages Executive had at termination, including dependent coverage, will also be continued for the Continuation Period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance (or in such other manner as the Company may agree). If the terms of any benefit plan referred to in this subsection do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. The coverages provided for in this subsection shall be applied against and reduce the period for which COBRA benefits will be provided. If Executive is covered by a split-dollar or similar life insurance program as of the date of termination, Executive shall have the option in Executive's sole discretion to have such policy transferred to Executive upon termination, provided that, except as may otherwise be provided in a separate agreement, the Company is paid for its interest (i.e., the cash surrender value) in the policy upon such transfer. (iv) Employee Retirement Plans. If applicable law and the provisions of the applicable plan permit continued participation, Executive will be entitled to continue to participate, consistent with past practices, in the tax qualified employee retirement plans maintained by the Company in effect as of Executive's date of termination, including, to the extent such plans are still maintained by the Company, the Interface Flooring Systems, Inc. Retirement Plan and Trust, and the Interface, Inc. Savings and Investment Plan (the "Savings Plan"). Executive's participation in such retirement plans shall continue for the Continuation Period (at the end of which Executive will be considered to have terminated employment within the meaning of the plans), and the compensation payable to Executive under subsections (c)(i) and (ii) above shall be treated (unless otherwise excluded under the terms of such retirement plans) as compensation when computing benefits under the plans. For purposes of the Savings Plan, Executive will be credited with an amount equal to the Company's contribution to the plan, assuming Executive had participated in such plan at the maximum permissible contribution level. To the extent permissible under applicable law, 3 4 Executive shall also be considered fully vested under such plans. If continued participation in any plan is not permitted or if Executive's benefits are not fully vested, the Company shall pay to Executive and, if applicable, Executive's beneficiary, a supplemental benefit equal to the present value on the date of termination of employment (calculated as provided in each plan) of the excess of (A) the benefit Executive would have been paid under such plan if Executive had continued to be covered for the Continuation Period (less any amounts Executive would have been required to contribute) and been treated as fully vested, over (B) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum within 30 days of the date of termination. (v) Stock Awards. As of Executive's date of termination, all outstanding stock options granted to Executive under the Interface, Inc. Omnibus Stock Incentive Plan, the Interface, Inc. Key Employee Stock Option Plan (1993), the Interface, Inc. Offshore Stock Option Plan and the Interface Flooring Systems, Inc. Key Employee Stock Option Plan shall become 100% vested and thus immediately exercisable. To the extent inconsistent with this immediate vesting requirement, the provisions of this clause (v) shall constitute an amendment of Executive's stock option agreements under such stock plans. In addition, but only to the extent expressly provided in any restricted stock agreement associated with the Interface, Inc. Omnibus Stock Incentive Plan, restrictions on all shares of restricted stock (and other performance shares, performance units or deferred shares) awarded to Executive (if any) under said plan shall lapse, and the affected shares shall become 100% vested. (vi) Salary Continuation Agreement. From and after Executive's date of termination, Executive shall continue to be covered by, and entitled to the benefits provided under, Executive's Salary Continuation Agreement with the Company, payable in accordance with the terms of said agreement. If Executive is entitled to benefits under this Section 5(c), he will be treated as having his employment terminated by the Company without "Cause" as described in the Salary Continuation Agreement. (vii) Cessation Upon Death. The continuation benefits payable or to be provided under clauses (i), (ii), (iii) and (iv) of this Section 5(c) shall cease in the event of Executive's death. (The foregoing shall not operate or be construed to negate the benefits payable to Executive and Executive's estate under the plans and policies referenced in clauses (iii) and (iv) in the event of Executive's death during the Continuation Period.) (viii) Additional Consideration. To be entitled to receive the foregoing compensation, Executive shall sign whatever additional release of claims, confidentiality agreements and other documents the Company may reasonably request of Executive at the time of payment, and for so long as Executive is entitled to the benefits of such compensation Executive shall cooperate fully with and devote Executive's reasonable best efforts to providing assistance requested by the Company. Such assistance shall not require Executive to be active in the Company's day-to-day activities or engage in any substantial travel, and Executive shall be reimbursed for all reasonable and necessary out-of-pocket business expenses incurred in providing such assistance. 4 5 (ix) Effect of Other Termination Events. If Executive voluntarily resigns from employment or is terminated for just cause prior to the end of the term of this Agreement, then Executive shall be entitled to no payment or compensation whatsoever from the Company under this Agreement, other than as may be due Executive through Executive's last day of employment. If Executive's employment is terminated due to Executive's disability or death (as defined in the Company's long-term disability plan or insurance policy), Executive shall be entitled to no payment or compensation other than as provided by the Company's short and long-term disability plans or, in the case of death, its life insurance payment policy in effect for executives of Executive's level or pursuant to the terms of any separate agreement concerning split-dollar or similar life insurance; provided, however, Executive or Executive's estate, as the case may be, shall not by operation of this provision forfeit any rights in which Executive is vested at the time of Executive's disability or death (including, without limitation, the rights and benefits provided under applicable retirement plans and Executive's Salary Continuation Agreement with the Company). (x) Change in Control. If Executive becomes entitled to compensation and benefits under this Section 5(c) and such payments would be considered to be severance payments contingent upon a change in control under Internal Revenue Code Section 280G, Executive shall be required to offer to perform the duties and job Executive was performing under this Agreement at the time of the change in control and, if such offer is rejected, to mitigate damages (but only with respect to amounts that would be treated as severance payments under Code Section 280G) by reducing the amount of such severance payments Executive is entitled to receive by any compensation and benefits Executive earns from subsequent employment (but Executive shall not be required to seek such employment) during the Continuation Period. If the compensation and benefits payable to Executive under this Section 5(c) are reduced by mitigation, Executive shall continue to be entitled to receive in the aggregate under this Agreement and the Change in Control Agreement between Executive and Company of even date herewith, an amount of compensation and benefits at least equal to 2.99 times Executive's "Base Amount" as defined in Internal Revenue Code Section 280G. In the event Executive's employment is terminated without "just cause" within 24 months following the date of a "Change in Control" (as defined in the Change in Control Agreement) or within six months prior to the date of a Change in Control and is related to such Change in Control, the amounts payable to Executive under clauses (i) and (ii) above shall be paid in single lump sum payments determined in the same manner as provided in Sections 4(c)(i) and (ii) of the Change in Control Agreement. (d) Just Cause. The Company, for just cause, may immediately terminate Executive's employment hereunder at any time upon delivery of written notice to Executive. For purposes of this Agreement, the phrase "just cause" shall mean: (i) Executive's fraud, dishonesty, gross negligence, or willful misconduct with respect to business affairs of the Company (including its subsidiaries and affiliated companies), (ii) Executive's refusal or repeated failure to follow the established lawful policies of the Company applicable to persons occupying the same or similar positions, (iii) Executive's material breach of this Agreement, or (iv) Executive's conviction of a felony or other crime involving moral turpitude. A termination of Executive for just cause based on clause (i), (ii) or (iii) of the preceding sentence shall take effect 30 days after Executive receives from the Company written notice of intent to terminate and the Company's description of the alleged 5 6 cause, unless Executive shall, during such 30-day period, remedy the events or circumstances constituting just cause; provided, however, such termination shall take effect immediately upon the giving of written notice of termination for just cause under any of such clauses if the Company shall have determined in good faith that such events or circumstances are not remediable (which determination shall be stated in such notice). (e) Survival of Provisions. Upon termination of Executive's employment for any reason whatsoever (whether voluntary on the part of Executive, for just cause, or other reasons), the obligations of Executive pursuant to Section 7 hereof shall survive and remain in effect. 6. Compensation and Benefits. During the term of Executive's employment with the Company hereunder: (a) Continuity. Executive's salary, current perquisites (including, but not limited to, car allowance) and bonus opportunity (currently expressed as a percentage of Executive's base salary) may be increased from time to time as determined by the Board of Directors (or Committee of the Board), but shall not be reduced or eliminated. (b) Other Benefits. Executive shall be entitled to vacation with pay, life insurance, health insurance and such other employee benefits as Executive may be entitled to receive in accordance with the established plans and policies of the Company, as in effect from time to time. (c) Tax Equalization. In the event of Executive's relocation, the Company and Executive will cooperate in good faith to agree on such adjustments to Executive's compensation and benefits package as are appropriate to provide consistent after-tax income to Executive equivalent to that of a person receiving Executive's pay and benefits taxable under the terms of the U.S. Internal Revenue Code, while also acting in the best interests of the Company. 7. Restrictive Covenants. (a) Definitions. As used in this Section 7, the following terms shall have the meanings ascribed to such terms as set forth below. (i) "Company" - Interface, Inc. and its direct and indirect subsidiaries and affiliated entities throughout the world. (ii) "Confidential Information" - information relating to Company's customers, operations, finances, and business in any form that derives value from not being generally known to other persons or entities, including, but not limited to, technical or nontechnical data, formulas, patterns (including future carpet and fabric patterns), customer purchasing practices and preferences, compilations (including compilations of customer information), programs (including computer programs and models), devices (including carpet and fabric manufacturing equipment), methods (including aesthetic and functional design and manufacturing methods), techniques (including style and design technology and plans), drawings (including product or equipment drawings), processes, 6 7 financial data (including sales forecasts, sales histories, business plans, budgets and other forecasts), or lists of actual or potential customers or suppliers (including identifying information about those customers), whether or not reduced to writing. Confidential Information subject to this Agreement may include information that is not a trade secret under applicable law, but such information not constituting a trade secret shall be treated as Confidential Information under this Agreement for only a two year period after the expiration of this Agreement or termination of Executive's employment. (iii) "Customers" - customers of Company that Executive, during the two year period before the expiration of this Agreement or termination of Executive's employment, (A) solicited or serviced or (B) about whom Executive had Confidential Information. The parties acknowledge that a two-year period for defining Customers (as well as "Suppliers", below) is reasonable based on Company's typical sales cycle, budgetary requirements and procurement procedures. (iv) "Products" - (A) broadloom carpet, carpet tile, and broadloom carpet in six-foot and competitive widths, (B) specialty interior fabrics (wall, panel, window and upholstery), and (C) specialty chemicals and interior architectural products (including raised/access floors) for contract, commercial and institutional markets and customers (i.e., all markets other than residential). (v) "Services" - the services Executive shall provide as a Company executive and that Executive shall be prohibited from providing in competition with Company in accordance with the terms of this Agreement, which are to manage and supervise, and to have responsibility for, the conduct of the business of designing, developing, manufacturing, purchasing for resale, marketing, selling, distributing, installing, maintaining and reclaiming, for contract, commercial and institutional markets and customers (i.e., all markets other than residential), (A) broadloom carpet, carpet tile, and broadloom carpet in six-foot and competitive widths, (B) specialty interior fabrics (wall, panel, window and upholstery), and (C) specialty chemicals and interior architectural products (including raised/access floors); without limiting the foregoing, Executive shall be responsible for: (1) development of overall business strategy, (2) planning for expansion of the business, including expansion through mergers, acquisitions, joint ventures and other combinations and affiliations, (3) providing supervision and oversight of the principal executives in charge of various components of the business, (4) developing and leading efforts to enhance and improve the environmental sustainability of the foregoing products and of the manufacturing operations and processes utilized with respect to such products, and (5) serving as the representative and spokesman for the business with its various constituencies, including employees, customers, suppliers, shareholders and the investment community. Executive acknowledges that he has been informed of and had an opportunity to discuss with Company the specific activities Executive will perform as Services, and that Executive understands the scope of the activities constituting Services. (vi) "Supplier" - a supplier of Company that Executive, during the two year period before the expiration of this Agreement or termination of Executive's employment, (A) had contact with on behalf of Company or (B) about whom Executive had Confidential Information. (vii) "Territory" - North America, which is the geographic area where Executive performs Services for Company and in which Company continues to conduct business. Executive 7 8 has been informed of and had an opportunity to discuss with Company the specific territory in which Executive will perform Services. Executive acknowledges that the market for Company Products is worldwide, and that the Territory is the area in which Executive's provision of Services in violation of this Agreement would cause harm to Company. (b) Non-disclosure and Restricted Use. Executive shall use best efforts to protect Confidential Information. Furthermore, Executive will not use, except in connection with work for Company, and will not disclose during or after Executive's employment, Company's Confidential Information. (c) Return of Materials. Upon the expiration of this Agreement or termination for any reason of Executive's employment, or at any time upon Company's request, Executive will deliver promptly to Company all materials, documents, plans, records, notes or other papers and any copies in Executive's possession or control relating in any way to Company's business, which at all times shall be the property of Company. (d) Non-solicitation of Customers. During employment and for two years after the termination for any reason of Executive's employment, Executive will not solicit Customers for the purpose of providing or selling any Products. (e) Non-solicitation of Suppliers. During employment and for two years after the termination for any reason of Executive's employment, Executive will not solicit any Supplier for the purpose of obtaining goods or services that Company obtained from that Supplier and that are used in or relate to any Products. (f) Non-solicitation of Company Employees. During employment and for two years after the termination for any reason of Executive's employment, Executive will not solicit for employment with another person or entity, anyone who is, or was at any time during the year prior to such termination of Executive's employment, a Company employee. (g) Limitations on Post-Termination Competition. During employment and for two years after the termination for any reason of Executive's employment, Executive will not provide any Services within the Territory to any person or entity developing, manufacturing, marketing, selling, distributing or installing any Products. (h) Disparagement. Executive shall not at any time make false or misleading statements about Company, including its products, management, employees, customers and suppliers. (i) Future Employment Opportunities. At any time before, and for two years after, the termination for any reason of Executive's employment, Executive shall, before accepting employment with another employer, provide such prospective employer with a copy of this Agreement and, upon accepting any employment with another employer, provide Company with such employer's name and a description of the services Executive will provide to such employer. 8 9 (j) Work For Hire Acknowledgment; Assignment. Executive acknowledges that Executive's work on and contributions to documents, programs, and other expressions in any tangible medium (collectively, "Works") are within the scope of Executive's employment and part of Executive's duties and responsibilities. Executive's work on and contributions to the Works will be rendered and made by Executive for, at the instigation of, and under the overall direction of, Company, and are and at all times shall be regarded, together with the Works, as "work made for hire" as that term is used in the United States Copyright Laws. Without limiting this acknowledgment, Executive assigns, grants, and delivers exclusively to Company all rights, titles, and interests in and to any such Works, and all copies and versions, including all copyrights and renewals. Executive will execute and deliver to Company, its successors and assigns, any assignments and documents Company requests for the purpose of establishing, evidencing, and enforcing or defending its complete, exclusive, perpetual and worldwide ownership of all rights, titles and interests of every kind and nature, including all copyrights, in and to the Works, and Executive constitutes and appoints Company as Executive's agent to execute and deliver any assignments or documents Executive fails or refuses promptly to execute and deliver, this power and agency being coupled with an interest and being irrevocable. (k) Inventions, Ideas and Patents. Executive shall disclose promptly to Company (which shall receive it in confidence), and only to Company, any invention or idea of Executive (developed alone or with others) conceived or made during Executive's employment by Company or within six months of the date of expiration of this Agreement or termination of employment. Executive assigns to Company any such invention or idea in any way connected with Executive's employment with Company or related to Company's business, research or development, or demonstrably anticipated research or development, and will cooperate with Company and sign all documents deemed necessary by Company to enable it to obtain, maintain, protect and defend patents covering such inventions and ideas and to confirm Company's exclusive ownership of all rights in such inventions, ideas and patents. Executive irrevocably appoints Company as Executive's agent to execute and deliver any assignments or documents Executive fails or refuses to execute and deliver promptly, this power and agency being coupled with an interest and being irrevocable. This constitutes Company's written notification that this assignment does not apply to an invention for which no equipment, supplies, facility or trade secret information of Company was used and which was developed entirely on Executive's own time, unless (i) the invention relates (A) directly to the business of Company, or (B) to Company's actual or demonstrably anticipated research or development, or (ii) the invention results from any work performed by Executive for Company. 8. Injunctive Relief. Executive acknowledges that any breach of the terms of Section 7 hereof would result in material damage to the Company, although it might be difficult to establish the monetary value of the damage. Executive therefore agrees that the Company, in addition to any other rights and remedies available to it, shall be entitled to obtain an immediate injunction (whether temporary or permanent) from any court of appropriate jurisdiction in the event of any such breach thereof by Executive, or threatened breach which the Company in good faith believes will or is likely to result in irreparable harm to the Company. 9. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia and the federal laws of the United States of 9 10 America, without regard to rules relating to the conflict of laws. Executive hereby consents to the exclusive jurisdiction of the Superior Court of Cobb County, Georgia and the U.S. District Court in Atlanta, Georgia and hereby waives any objection Executive might otherwise have to jurisdiction and venue in such courts in the event either court is requested to resolve a dispute between the parties. 10. Notices. All notices, consents and other communications required or authorized to be given by either party to the other under this Agreement shall be in writing and shall be deemed to have been given or submitted (i) upon actual receipt if delivered in person or by facsimile transmission, (ii) upon the earlier of actual receipt or the expiration of two business days after sending by express courier (such as UPS or Federal Express), and (iii) upon the earlier of actual receipt or the expiration of seven days after mailing if sent by registered or certified express mail, postage prepaid, to the parties at the following addresses: To the Company: Interface, Inc. 2859 Paces Ferry Road, Suite 2000 Atlanta, Georgia 30339 Fax No.: 770-437-6822 Attn: Board of Directors With a copy to: Interface, Inc. 2859 Paces Ferry Road, Suite 2000 Atlanta, Georgia 30339 Fax No.: 770-319-6270 Attn: General Counsel To Executive: Ray C. Anderson at the last address and fax number shown on the records of the Company Executive shall be responsible for providing the Company with a current address. Either party may change its address (and facsimile number) for purposes of notices under this Agreement by providing notice to the other party in the manner set forth above. 11. Failure to Enforce. The failure of either party hereto at any time, or for any period of time, to enforce any of the provisions of this Agreement shall not be construed as a waiver of such provision(s) or of the right of such party thereafter to enforce each and every such provision. 12. Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns, and Executive and his heirs and personal representatives. Any business entity or person succeeding to all or substantially all of the business of the Company by stock purchase, merger, consolidation, purchase of assets, or otherwise shall be bound by and shall adopt and assume this Agreement, and the Company shall obtain the assumption of this Agreement by such successor. 10 11 13. Entire Agreement. This Agreement supersedes all prior discussions and agreements between the parties and constitutes the sole and entire agreement between the Company and Executive with respect to the subject matter hereof. This Agreement shall not be modified or amended except pursuant to a written document signed by the parties hereto, which makes specific reference to this Agreement. 14. Severability. The Company's various rights and remedies referenced in this Agreement are cumulative and nonexclusive of one another, and Executive's covenants and agreements contained herein are severable and independent of one another. The existence of any claim by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of any or all of such covenants or agreements of Executive hereunder. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining provisions shall constitute their agreement with respect to the subject matter hereof, and all such remaining provisions shall continue in full force and effect. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officers, and Executive has hereunder set his hand, as of the date first above written. INTERFACE, INC. By: /s/ Charles R. Eitel --------------------------------- Charles R. Eitel, President and Chief Operating Officer Attest: /s/ Raymond S. Willoch ------------------------------ Raymond S. Willoch, Secretary EXECUTIVE: /s/ Ray C. Anderson -------------------------------------- Ray C. Anderson 11 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-28-1997 MAR-30-1997 0 0 164,911 7,349 152,956 343,353 413,187 202,223 854,775 155,024 380,892 0 0 2,698 292,758 854,775 257,345 257,345 174,432 237,388 1,154 0 8,389 10,414 4,061 6,353 0 0 0 6,353 0.28 0.28
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