Interface, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 2, 2022 (52 weeks); comparator FY2020 ended January 3, 2021 (53 weeks). Interface makes modular carpet, resilient flooring including LVT, and nora rubber flooring. It reports two segments: Americas (AMS) and Europe, Africa, Asia and Australia (EAAA).
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,200.4 million | $1,103.3 million |
| Gross profit / margin | $432.7 million / 36.0% | $410.6 million / 37.2% |
| Operating income (loss) | $104.8 million / 8.7% of sales | $(39.3) million / (3.6)% |
| Net income (loss) | $55.2 million; $0.94 per diluted share | $(71.9) million; $(1.23) per diluted share |
| Cash from operations | $86.7 million | $119.1 million |
| Capital expenditures | $28.1 million | $62.9 million |
- Sales rose 8.8% year over year, reflecting approximately 5.1% higher volume and 3.7% higher prices; currency translation added $23.9 million. Growth was strongest in non-corporate office markets.
- Cost of sales increased to 64.0% of revenue from 62.8%, as raw-material, freight and labor inflation and supply-chain disruption pressured margins. SG&A declined 2.7% to $324.3 million, partly reflecting lower legal and severance costs versus FY2020.
- FY2020 included a $121.3 million goodwill and intangible-asset impairment charge, a major reason operating results improved in FY2021. FY2021 also included $3.9 million of restructuring charges and $4.4 million of fixed-asset impairment charges.
- AMS sales increased 9.7% to $651.2 million; segment adjusted operating income (AOI) fell 4.6% to $85.0 million. EAAA sales increased 7.7% to $549.2 million; AOI rose 74.1% to $37.3 million.
Cash, debt and liquidity
- Year-end cash was $97.3 million, down from $103.1 million. Operating cash flow fell $32.4 million, principally because higher receivables and inventory absorbed working capital.
- Total debt was $525.1 million: $225.1 million under the syndicated credit facility and $300.0 million of 5.50% senior notes due 2028. The facility had $290.9 million of available borrowing capacity; the facility matures in November 2025.
- The facility requires a secured net leverage ratio no greater than 3.00:1.00 and interest coverage of at least 2.25:1.00. The company reported compliance at year-end and expects to remain compliant.
- Management said liquidity should be sufficient for foreseeable obligations. Contractual obligations due in less than one year totaled $79.2 million, including debt, leases, interest, purchase and pension obligations.
- Dividend payments were $0.04 per share in FY2021, down from $0.095 in FY2020. The board retains discretion over future dividends, subject to debt-agreement restrictions.
Changes, outlook and key risks
- COVID-19-related restrictions eased in some markets and revenue rebounded, particularly in healthcare, education, retail, residential/living and transportation. More than half of sales were in non-corporate office markets.
- Management expected supply-chain disruption, raw-material shortages and inflation, elevated freight costs, and labor shortages to continue affecting results, particularly in the first half of 2022. The filing provides no specific revenue or earnings guidance.
- For 2022, management estimated interest expense of $27–$28 million and capital expenditures of approximately $30 million. The Thailand plant closure and workforce reduction of about 188 employees were expected to cost $4–$5 million, require $3–$4 million in cash, and yield approximately $1.7 million in annualized savings as the plan completes in 2022.
- Backlog was $215.6 million on February 6, 2022, versus $177.7 million a year earlier; backlog can fluctuate with project timing, currency and supply or installation delays.
- Principal risks include continued pandemic effects; cyclical commercial construction and renovation demand, especially corporate offices; inflation and dependence on a limited number of key suppliers; labor availability; currency and geopolitical exposure; variable-rate debt, refinancing and covenant risk; and potential further asset impairment.
- Contingencies include a putative securities class action related to the settled SEC accounting matter and a former CEO’s lawsuit. The company disputes both claims and intends to defend itself. The SEC matter was settled in 2020 with a $5.0 million fine and no admission or denial of wrongdoing.
- The annual goodwill test indicated no impairment in FY2021, though the auditor identified the EMEA reporting-unit valuation as a critical audit matter. The financial-statement audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting.
Investor verification checklist
- Track whether pricing and productivity can offset raw-material, freight and labor inflation, and whether gross margin recovers.
- Monitor conversion of the larger backlog into shipped sales, including any supply, manufacturing or installation delays.
- Verify cash generation and working-capital needs, debt reduction, available facility capacity and ongoing covenant compliance.
- Assess execution and realized savings from the Thailand closure and workforce restructuring.
- Follow developments in the securities class action, former CEO litigation, and any tax or impairment developments.
- Evaluate the durability of non-corporate office growth and the company’s exposure to office-market demand, foreign exchange and international risks.