Interface, Inc. Form 10-Q 07/01/2007
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 July 1, 2007
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer o
|
Accelerated
Filer x
|
Non-Accelerated
Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No x
Shares
outstanding of each of the registrant's classes of common stock at August 3,
2007:
Class
|
|
|
|
Number
of Shares
|
|
Class
A Common Stock, $.10 par value per share
|
|
|
|
|
|
55,057,381
|
|
Class
B Common Stock, $.10 par value per share
|
|
|
|
|
|
6,486,843
|
|
INTERFACE,
INC.
INDEX
|
|
PAGE
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
Consolidated
Condensed Balance Sheets - July 1, 2007 and December
31, 2006
|
3
|
|
|
Consolidated
Condensed Statements of Operations - Three Months and Six Months
Ended July 1, 2007 and July 2, 2006
|
4
|
|
|
Consolidated
Statements of Comprehensive Income (Loss) - Three Months and Six
Months
Ended July 1, 2007 and July 2, 2006
|
5
|
|
|
Consolidated
Condensed Statements of Cash Flows - Six Months Ended July 1, 2007
and July 2, 2006
|
6
|
|
|
Notes
to Consolidated Condensed Financial Statements
|
7
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and
Results of Operations
|
21
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
26
|
|
Item
4.
|
Controls
and Procedures
|
27
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
27
|
|
Item
1A.
|
Risk
Factors
|
27
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
5.
|
Other
Information
|
28
|
|
Item
6.
|
Exhibits
|
28
|
PART
I -
FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
INTERFACE,
INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED BALANCE SHEETS
(IN
THOUSANDS)
|
|
JULY
1, 2007
|
|
DECEMBER
31, 2006
|
|
|
|
(UNAUDITED)
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
89,346
|
|
$
|
109,157
|
|
Accounts
Receivable, net
|
|
|
152,034
|
|
|
143,025
|
|
Inventories
|
|
|
128,446
|
|
|
112,293
|
|
Prepaid
and Other Expenses
|
|
|
21,069
|
|
|
21,805
|
|
Deferred
Income Taxes
|
|
|
6,940
|
|
|
6,829
|
|
Assets
of Business Held for Sale
|
|
|
92,194
|
|
|
158,322
|
|
TOTAL
CURRENT ASSETS
|
|
|
490,029
|
|
|
551,431
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, less
accumulated depreciation
|
|
|
146,608
|
|
|
134,631
|
|
DEFERRED
TAX ASSET
|
|
|
77,176
|
|
|
65,841
|
|
GOODWILL
|
|
|
137,133
|
|
|
135,610
|
|
OTHER
ASSETS
|
|
|
48,157
|
|
|
40,827
|
|
TOTAL
ASSETS
|
|
$
|
899,103
|
|
$
|
928,340
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
55,310
|
|
$
|
49,542
|
|
Accrued
Expenses
|
|
|
102,488
|
|
|
98,702
|
|
Current
Portion of Long-Term Debt
|
|
|
79,235
|
|
|
--
|
|
Liabilities
of Business Held for Sale
|
|
|
22,506
|
|
|
22,934
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
259,539
|
|
|
171,178
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT, less current maturities
|
|
|
8,765
|
|
|
--
|
|
SENIOR
NOTES
|
|
|
175,000
|
|
|
276,365
|
|
SENIOR
SUBORDINATED NOTES
|
|
|
135,000
|
|
|
135,000
|
|
DEFERRED
INCOME TAXES
|
|
|
8,196
|
|
|
2,058
|
|
OTHER
|
|
|
65,211
|
|
|
63,839
|
|
TOTAL
LIABILITIES
|
|
$
|
651,711
|
|
$
|
648,440
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
6,493
|
|
|
5,506
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
--
|
|
|
--
|
|
Common
Stock
|
|
|
6,146
|
|
|
6,066
|
|
Additional
Paid-In Capital
|
|
|
329,799
|
|
|
323,132
|
|
Retained
Earnings (Deficit)
|
|
|
(41,493
|
)
|
|
5,217
|
|
Accumulated
Other Comprehensive Income - Foreign Currency Translation
Adjustment
|
|
|
(6,654
|
)
|
|
(12,847
|
)
|
Accumulated
Other Comprehensive Income - Pension Liability
|
|
|
(46,899
|
)
|
|
(47,174
|
)
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
240,899
|
|
|
274,394
|
|
|
|
$
|
899,103
|
|
$
|
928,340
|
|
See
accompanying notes to consolidated condensed financial statements.
INTERFACE,
INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN
THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
|
THREE
MONTHS
ENDED
|
|
SIX
MONTHS
ENDED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JULY
1,
2007
|
|
JULY
2,
2006
|
|
JULY
1,
2007
|
|
JULY
2,
2006
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
264,962
|
|
$
|
223,184
|
|
$
|
508,454
|
|
$
|
421,318
|
|
Cost
of Sales
|
|
|
172,737
|
|
|
147,476
|
|
|
333,001
|
|
|
277,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT ON SALES
|
|
|
92,225
|
|
|
75,708
|
|
|
175,453
|
|
|
143,632
|
|
Selling,
General and Administrative Expenses
|
|
|
61,332
|
|
|
51,617
|
|
|
118,379
|
|
|
99,455
|
|
Loss
on Disposition - Specialty Products
|
|
|
--
|
|
|
--
|
|
|
1,873
|
|
|
--
|
|
OPERATING
INCOME
|
|
|
30,893
|
|
|
24,091
|
|
|
55,201
|
|
|
44,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
9,161
|
|
|
10,936
|
|
|
18,281
|
|
|
22,168
|
|
Other
Expense
|
|
|
612
|
|
|
445
|
|
|
1,035
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
BEFORE INCOME TAX EXPENSE
|
|
|
21,120
|
|
|
12,710
|
|
|
35,885
|
|
|
21,291
|
|
Income
Tax Expense
|
|
|
7,797
|
|
|
4,234
|
|
|
13,493
|
|
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
|
13,323
|
|
|
8,476
|
|
|
22,392
|
|
|
13,905
|
|
Loss
from Discontinued Operations, Net of Tax
|
|
|
(12,325
|
)
|
|
(868
|
)
|
|
(62,010
|
)
|
|
(23,385
|
)
|
Loss
on Disposal of Discontinued Operations, Net of Tax
|
|
|
--
|
|
|
(1,723
|
)
|
|
--
|
|
|
(1,723
|
)
|
NET
INCOME (LOSS)
|
|
$
|
998
|
|
$
|
5,885
|
|
$
|
(39,618
|
)
|
$
|
(11,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) Per Share - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$
|
0.22
|
|
$
|
0.16
|
|
$
|
0.37
|
|
$
|
0.26
|
|
Discontinued
Operations
|
|
|
(0.20
|
)
|
|
(0.02
|
)
|
|
(1.03
|
)
|
|
(0.44
|
)
|
Loss
on Disposal of Discontinued Operations
|
|
|
--
|
|
|
(0.03
|
)
|
|
--
|
|
|
(0.03
|
)
|
Earnings
(Loss) Per Share - Basic
|
|
$
|
0.02
|
|
$
|
0.11
|
|
$
|
(0.66
|
)
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) Per Share - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$
|
0.22
|
|
$
|
0.15
|
|
$
|
0.36
|
|
$
|
0.25
|
|
Discontinued
Operations
|
|
|
(0.20
|
)
|
|
(0.01
|
)
|
|
(1.00
|
)
|
|
(0.43
|
)
|
Loss
on Disposal of Discontinued Operations
|
|
|
--
|
|
|
(0.03
|
)
|
|
--
|
|
|
(0.03
|
)
|
Earnings
(Loss) Per Share - Diluted
|
|
$
|
0.02
|
|
$
|
0.11
|
|
$
|
(0.64
|
)
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding - Basic
|
|
|
60,322
|
|
|
53,375
|
|
|
60,210
|
|
|
52,995
|
|
Common
Shares Outstanding - Diluted
|
|
|
61,571
|
|
|
54,996
|
|
|
61,435
|
|
|
54,548
|
|
See
accompanying notes to consolidated condensed financial statements.
INTERFACE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN
THOUSANDS)
|
|
THREE
MONTHS
ENDED
|
|
SIX
MONTHS
ENDED
|
|
|
|
|
|
|
|
|
|
JULY
1, 2007
|
|
JULY
2, 2006
|
|
JULY
1, 2007
|
|
JULY
2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
998
|
|
$
|
5,885
|
|
$
|
(39,618
|
)
|
$
|
(11,203
|
)
|
Other
Comprehensive Income, Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Translation Adjustment and Pension Liability Adjustment
|
|
|
2,795
|
|
|
9,694
|
|
|
6,468
|
|
|
11,471
|
|
Comprehensive
Income (Loss)
|
|
$
|
3,793
|
|
$
|
15,579
|
|
$
|
(33,150
|
)
|
$
|
268
|
|
See
accompanying notes to consolidated condensed financial statements.
INTERFACE,
INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN
THOUSANDS)
|
|
SIX
MONTHS ENDED
|
|
|
|
JULY
1, 2007
|
|
JULY
2, 2006
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(39,618
|
)
|
$
|
(11,203
|
)
|
Loss
from discontinued operations
|
|
|
62,010
|
|
|
25,108
|
|
Income
from continuing operations
|
|
|
22,392
|
|
|
13,905
|
|
Adjustments
to reconcile income (loss) to cash used in operating
activities:
|
|
|
|
|
|
|
|
Loss
on disposition of assets - Specialty Products
|
|
|
1,873
|
|
|
--
|
|
Depreciation
and amortization
|
|
|
11,960
|
|
|
10,822
|
|
Deferred
income taxes and other
|
|
|
(1,839
|
)
|
|
(5,708
|
)
|
Working
capital changes:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(7,949
|
)
|
|
(8,893
|
)
|
Inventories
|
|
|
(16,115
|
)
|
|
(18,501
|
)
|
Prepaid
expenses
|
|
|
1,740
|
|
|
(3,068
|
)
|
Accounts
payable and accrued expenses
|
|
|
8,305
|
|
|
5,073
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) continuing operations
|
|
|
20,367
|
|
|
(6,370
|
)
|
Cash
provided by (used in) discontinued operations
|
|
|
3,188
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
|
|
|
23,555
|
|
|
(6,862
|
)
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(17,947
|
)
|
|
(14,267
|
)
|
Other
|
|
|
(7,163
|
)
|
|
(3,973
|
)
|
Cash
used in investing activities of continuing operations
|
|
|
(25,110
|
)
|
|
(18,240
|
)
|
Cash
provided by (used in) discontinued operations
|
|
|
(6,015
|
)
|
|
27,028
|
|
|
|
|
|
|
|
|
|
CASH
PROVIDED BY (USED IN) INVESTING ACTIVITIES:
|
|
|
(31,125
|
)
|
|
8,788
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net
borrowing of long-term debt
|
|
|
8,743
|
|
|
1,573
|
|
Repurchase
of senior notes
|
|
|
(22,400
|
)
|
|
(30,750
|
)
|
Proceeds
from issuance of common stock
|
|
|
2,773
|
|
|
5,650
|
|
Dividends
paid
|
|
|
(2,450
|
)
|
|
--
|
|
Debt
issuance costs
|
|
|
--
|
|
|
(679
|
)
|
|
|
|
|
|
|
|
|
CASH
USED IN FINANCING ACTIVITIES:
|
|
|
(13,334
|
)
|
|
(24,206
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating, investing and
|
|
|
|
|
|
|
|
financing
activities
|
|
|
(20,904
|
)
|
|
(22,280
|
)
|
Effect
of exchange rate changes on cash
|
|
|
1,093
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
Net
change during the period
|
|
|
(19,811
|
)
|
|
(21,050
|
)
|
Balance
at beginning of period
|
|
|
109,157
|
|
|
47,275
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
89,346
|
|
$
|
26,225
|
|
See
accompanying notes to consolidated condensed financial statements.
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 Company's year-end
financial statements and notes thereto contained in its Annual Report on Form
10-K for the fiscal year ended December 31, 2006, as filed with the
Commission.
The
financial information included in this report has been prepared by the Company,
without audit. 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. The December 31, 2006,
consolidated condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by accounting
principles generally accepted in the United States.
In
2004,
the Company committed to a plan to exit its owned Re:Source dealer businesses
(as well as a small Australian dealer business and a small residential fabrics
business) and began to dispose of several of the dealer subsidiaries. In
addition, as described below in Note 2, the Company has sold its Fabrics Group
business segment. The results of operations and related disposal costs, gains
and losses for these businesses are classified as discontinued operations for
all periods presented.
Additionally,
certain prior period amounts have been reclassified to conform to the current
period presentation.
NOTE
2 -
SALE OF FABRICS GROUP BUSINESS SEGMENT
In
the
second quarter of 2007, the Company entered into an agreement to sell its
Fabrics Group business segment to a third party. The sale was completed in
the
third quarter of 2007. The purchase price for the business segment was $70.0
million, subject to working capital and certain other adjustments. Of this
$70.0
million, $6.5 million represents deferred compensation which would be remitted
to the Company upon the achievement of certain performance criteria by the
disposed segment over the next 18 months. At this time, the Company has
determined that the receipt of this deferred amount is probable. As described
below in Notes 9 and 11, the Company incurred impairment charges of
approximately $61.9 million during the first six months of 2007 to reduce the
carrying value of the business segment to fair value as represented by the
purchase price. In the second quarter, the Company incurred approximately $3.6
million of direct costs to sell the business segment. The major classes of
assets and liabilities related to the business segment at July 1, 2007, are
accounts receivable of $16.7 million, inventory of $32.0 million, property,
plant and equipment of $41.9 million, and accounts payable and accruals of
$10.8
million.
In
April
2006, subsequent to the end of the first quarter of 2006, the Company sold
its
European fabrics business for $28.8 million to an entity formed by the
business’s management team. An impairment charge of $20.7 million was recorded
in the first quarter of 2006 in connection with this sale. The major classes
of
assets and liabilities related to this disposal group included accounts
receivable of $11.9 million, inventory of $11.4 million, property, plant and
equipment of $9.5 million and accounts payable of $7.6 million. In the
second quarter of 2006, the transaction resulted in a net loss on disposal
of
$1.7 million.
Current
and prior periods have been restated to include the results of operations and
related disposal costs, gains and losses for these businesses as discontinued
operations. In addition, assets and liabilities of these businesses have been
reported in assets and liabilities held for sale for both current and prior
periods.
NOTE
3 -
INVENTORIES
Inventories
are summarized as follows:
|
|
July
1, 2007
|
|
December
31, 2006
|
|
|
|
(In
thousands)
|
|
Finished
Goods
|
|
$
|
73,536
|
|
$
|
66,991
|
|
Work
in Process
|
|
|
15,632
|
|
|
13,537
|
|
Raw
Materials
|
|
|
39,278
|
|
|
31,765
|
|
|
|
$
|
128,446
|
|
$
|
112,293
|
|
NOTE
4 -
EARNINGS (LOSS) PER SHARE
Basic
earnings (loss) per share is computed by dividing net income (loss) to common
shareholders by the weighted average number of shares of Class A and Class
B Common Stock outstanding during the period. Shares issued or reacquired during
the period have been weighted for the portion of the period that they were
outstanding. Diluted earnings (loss) per share is calculated in a manner
consistent with that of basic earnings (loss) per share while giving effect
to
all potentially dilutive common shares that were outstanding during the period.
The computation of diluted earnings (loss) per share does not assume conversion
or exercise of securities that would have an anti-dilutive effect on earnings
(loss) per share. For the quarters ended April 1, 2007, and April 2, 2006,
outstanding options to purchase 50,000 and 45,000 shares of common stock,
respectively, were not included in the computation of diluted earnings per
share
as their impact would be anti-dilutive. For the six months ended July 1, 2007
and July 2, 2006, outstanding options to purchase 50,000 and 80,000 shares
of common stock, respectively, were not included in the computation of diluted
earnings per share as their impact would be anti-dilutive.
For
the Three-Month
Period
Ended
|
|
Net
Income
|
|
Average
Shares
Outstanding
|
|
Earnings
Per
Share
|
|
|
|
(In
Thousands Except Per Share Amounts)
|
|
July
1, 2007
|
|
$
|
998
|
|
|
60,322
|
|
$
|
0.02
|
|
Effect
of Dilution:
|
|
|
|
|
|
|
|
|
|
|
Options
& Restricted Stock
|
|
|
--
|
|
|
1,249
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
998
|
|
|
61,571
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2, 2006
|
|
$
|
5,885
|
|
|
53,375
|
|
$
|
0.11
|
|
Effect
of Dilution:
|
|
|
|
|
|
|
|
|
|
|
Options
& Restricted Stock
|
|
|
--
|
|
|
1,621
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
5,885
|
|
|
54,966
|
|
$
|
0.11
|
|
|
|
|
For
the Six-Month
Period
Ended
|
|
|
Net
Income (Loss)
|
|
|
Average
Shares
Outstanding
|
|
|
Earnings
(Loss)
Per
Share
|
|
|
|
(In
Thousands Except Per Share Amounts)
|
July
1, 2007
|
|
$
|
(39,618
|
)
|
|
60,210
|
|
$
|
(0.66
|
)
|
Effect
of Dilution:
|
|
|
|
|
|
|
|
|
|
|
Options
& Restricted Stock
|
|
|
--
|
|
|
1,225
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(39,618
|
)
|
|
61,435
|
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
July
2, 2006
|
|
$
|
(11,203
|
)
|
|
52,995
|
|
$
|
(0.21
|
)
|
Effect
of Dilution:
|
|
|
|
|
|
|
|
|
|
|
Options
& Restricted Stock
|
|
|
--
|
|
|
1,553
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(11,203
|
)
|
|
54,548
|
|
$
|
(0.21
|
)
|
NOTE
5 -
SEGMENT INFORMATION
Based
on
the quantitative thresholds specified in Statement of Financial Accounting
Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and
Related Information,” the Company has determined that it has three reportable
segments: (1) the Modular Carpet segment, which includes its InterfaceFLOR,
Heuga and FLOR modular carpet businesses, as well as its Intersept antimicrobial
sales and licensing program, (2) the Bentley Prince Street segment, which
includes its Bentley Prince Street broadloom, modular carpet and area rug
businesses, and (3) the Specialty Products segment, which includes Pandel,
Inc.,
a producer of vinyl carpet tile backing and specialty mat and foam products.
The
majority of the operations of the Specialty Products segment were sold on March
7, 2007. See Note 12 for further information. In June of 2007, the Company
entered into an agreement to sell its former Fabrics Group business segment,
and
has included the operations of this segment in discontinued operations as of
July 1, 2007. The sale was completed in the third quarter of 2007. See Note
2
for further information. The former segment known as the Re:Source Network,
which primarily encompassed the Company’s owned Re:Source dealers that provided
carpet installation and maintenance services in the United States, is also
reported as discontinued operations in the accompanying consolidated condensed
statements of operations.
The
accounting policies of the operating segments are the same as those described
in
the Summary of Significant Accounting Policies contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with
the Commission. Segment amounts disclosed are prior to any elimination entries
made in consolidation, except in the case of net sales, where intercompany
sales
have been eliminated. The chief operating decision maker evaluates performance
of the segments based on operating income. Costs excluded from this profit
measure primarily consist of allocated corporate expenses, interest/other
expense and income taxes. Corporate expenses are primarily comprised of
corporate overhead expenses. Thus, operating income includes only the costs
that
are directly attributable to the operations of the individual segment. Assets
not identifiable to any individual segment are corporate assets, which are
primarily comprised of cash and cash equivalents, short-term investments,
intangible assets and intercompany amounts, which are eliminated in
consolidation.
Segment
Disclosures
Summary
information by segment follows:
|
|
Modular
Carpet
|
|
Bentley
Prince Street
|
|
Specialty
Products
|
|
Total
|
|
|
|
(In
thousands)
|
|
Three
Months Ended July 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
225,523
|
|
$
|
39,439
|
|
$
|
--
|
|
$
|
264,962
|
|
Depreciation
and amortization
|
|
|
3,635
|
|
|
467
|
|
|
--
|
|
|
4,102
|
|
Operating
income
|
|
|
31,619
|
|
|
2,035
|
|
|
--
|
|
|
33,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended July 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
186,475
|
|
$
|
33,932
|
|
$
|
2,777
|
|
$
|
223,184
|
|
Depreciation
and amortization
|
|
|
4,123
|
|
|
603
|
|
|
19
|
|
|
4,745
|
|
Operating
income (loss)
|
|
|
23,634
|
|
|
1,704
|
|
|
(29
|
)
|
|
25,039
|
|
|
|
Modular
Carpet
|
|
Bentley
Prince
Street
|
|
Specialty
Products
|
|
Total
|
|
|
|
(In
thousands)
|
|
Six
Months Ended July 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
430,777
|
|
$
|
75,485
|
|
$
|
2,192
|
|
$
|
508,454
|
|
Depreciation
and amortization
|
|
|
7,179
|
|
|
933
|
|
|
12
|
|
|
8,124
|
|
Operating
income (loss)
|
|
|
58,381
|
|
|
2,967
|
|
|
(1,733
|
)
|
|
59,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended July 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
352,358
|
|
$
|
63,032
|
|
$
|
5,928
|
|
$
|
421,318
|
|
Depreciation
and amortization
|
|
|
7,396
|
|
|
911
|
|
|
37
|
|
|
8,344
|
|
Operating
income
|
|
|
44,309
|
|
|
2,217
|
|
|
14
|
|
|
46,540
|
|
A
reconciliation of the Company’s total segment operating loss, depreciation and
amortization, and assets to the corresponding consolidated amounts
follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
July
1, 2007
|
|
July
2, 2006
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
DEPRECIATION
AND AMORTIZATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment depreciation and amortization
|
|
$
|
4,102
|
|
$
|
4,745
|
|
$
|
8,124
|
|
$
|
8,344
|
|
Corporate
depreciation and amortization
|
|
|
1,404
|
|
|
571
|
|
|
3,836
|
|
|
2,478
|
|
Reported
depreciation and amortization
|
|
$
|
5,506
|
|
$
|
5,316
|
|
$
|
11,960
|
|
$
|
10,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating income
|
|
$
|
33,654
|
|
$
|
25,039
|
|
$
|
59,615
|
|
$
|
46,540
|
|
Corporate
expenses and other reconciling amounts
|
|
|
(2,761
|
)
|
|
(948
|
)
|
|
(4,414
|
)
|
|
(2,363
|
)
|
Reported
operating income
|
|
$
|
30,893
|
|
$
|
24,091
|
|
$
|
55,201
|
|
$
|
44,177
|
|
|
|
July
1, 2007
|
|
December
31, 2006
|
|
ASSETS
|
|
(In
thousands)
|
|
Total
segment assets
|
|
$
|
635,210
|
|
$
|
604,207
|
|
Discontinued
operations
|
|
|
92,194
|
|
|
158,322
|
|
Corporate
assets and eliminations
|
|
|
171,699
|
|
|
165,811
|
|
Reported
total assets
|
|
$
|
899,103
|
|
$
|
928,340
|
|
NOTE
6 -
LONG-TERM DEBT
On
June
30, 2006, the Company amended and restated its domestic revolving credit
facility. Under the amended credit facility, the maximum aggregate amount of
loans and letters of credit available to the Company at any one time was
increased from $100 million to $125 million, subject to a borrowing base
limitation. The amended credit facility matures on June 30, 2011. The facility
includes a domestic U.S. Dollar syndicated loan and letter of credit facility
up
to the lesser of (1) $125 million, or (2) a borrowing base equal to the sum
of specified percentages of eligible property and equipment, accounts
receivable, finished goods inventory and raw materials inventory in the U.S.
(the percentages and eligibility requirements for the borrowing base are
specified in the credit facility), less certain reserves. The previous facility
included a multicurrency syndicated loan and letter of credit facility in
British pounds, which has been removed from the amended facility.
Interest
on borrowings and letters of credit under the amended credit facility is charged
at varying rates computed by applying a margin (ranging from 0.0-2.25%) over
a
baseline rate (such as the prime interest rate or LIBOR), depending on the
type
of borrowing and our average excess borrowing availability during the most
recently completed fiscal quarter. In addition, the Company pays an unused
line
fee on the facility ranging from 0.25-0.375%, depending on our average excess
borrowing availability during the most recently completed fiscal quarter. The
facility is secured by substantially all of the assets of Interface, Inc. and
its domestic subsidiaries (subject to exceptions for certain immaterial
subsidiaries), including all of the stock of its domestic subsidiaries and
up to
65% of the stock of its first-tier material foreign subsidiaries. Those
collateral documents provide that, if an event of default occurs under the
facility, the lenders’ collateral agent may, upon the request of the specified
percentage of lenders, exercise remedies with respect to the collateral that
include foreclosing mortgages on the Company’s real estate assets, taking
possession of or selling its personal property assets, collecting its accounts
receivable, or exercising proxies to take control of the pledged stock of its
domestic and first-tier material foreign subsidiaries.
Under
the
amended credit facility, our
negative covenants have been relaxed in several respects, including with respect
to the repayment of our other indebtedness and the payment of dividends and
limiting their application to Interface, Inc. and its domestic subsidiaries.
Additionally, the financial covenants have been amended to delete the senior
secured debt coverage ratio and to modify the terms of the sole remaining
financial covenant, a fixed charge coverage test. The Company is currently
in
compliance under the facility and anticipates that it will remain in compliance
with the covenants.
As
of
July 1, 2007, there were zero borrowings and $10.0 million in letters of credit
outstanding under the amended facility. As of July 1, 2007, the Company could
have incurred $62.7 million of additional borrowings under the facility. The
available borrowing limit has been adjusted for the sale of the Fabrics Group
business segment, considered probable as of the end of the second quarter
2007.
|
Time
Period
|
|
Maximum
Amount
in
Euros
|
|
|
|
|
(in
millions)
|
|
|
January
1, 2007 - April 30, 2007
|
|
20
|
|
|
May
1, 2007 - September 30, 2007
|
|
26
|
|
|
October
1, 2007 - April 30, 2008
|
|
15
|
|
|
May
1, 2008 - September 30, 2008
|
|
21
|
|
|
October
1, 2008 - April 30, 2009
|
|
10
|
|
|
May
1, 2009 - September 30, 2009
|
|
16
|
|
|
From
October 1, 2009
|
|
5
|
|
Interest
on borrowings under this European facility is charged at varying rates computed
by applying a margin of 1% over ABN AMRO’s Euro base rate (consisting of the
leading refinancing rate as determined from time to time by the European Central
Bank plus a debit interest surcharge), which base rate is subject to a minimum
of 3.5% per annum. Fees on bank guarantees and documentary letters of credit
are
charged at a rate of 1% per annum or part thereof on the maximum amount and
for
the maximum duration of each guarantee or documentary letter of credit issued.
An unused line fee of 0.5% per annum is payable with respect to any undrawn
portion of the facility. The facility is secured by liens on certain real,
personal and intangible property of the Company’s principal European
subsidiaries. The facility also includes various financial covenants (which
require the borrowers to maintain a minimum interest coverage ratio, total
debt/EBITDA ratio, and tangible net worth/total assets) and affirmative and
negative covenants, and other provisions that restrict the borrowers’ ability to
take certain actions. As of July 1, 2007, there were approximately €6.7 million
(approximately $8.8 million) in borrowings outstanding under this facility,
at
an approximate rate of interest of 5.75%.
As
of
July 1, 2007, the estimated fair values (based on then-current market prices)
of
the 9.5% Senior Subordinated Notes due 2014, the 10.375% Senior Notes due 2010
and the 7.3% Senior Notes due 2008 were $145.5 million, $188.1 million and
$86.7 million, respectively.
NOTE
7 -
STOCK-BASED COMPENSATION
Stock
Option Awards
In
the
first quarter of fiscal 2006, the Company adopted SFAS No. 123R,
“Share-Based Payments,” which revises SFAS No. 123, “Accounting for Stock-Based
Compensation.” This standard requires that the Company measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant date fair value of the award. That cost will be recognized over
the
period in which the employee is required to provide the services - the requisite
service period (usually the vesting period) - in exchange for the award. The
grant date fair value for options and similar instruments will be estimated
using option pricing models. Under SFAS No. 123R, the Company is required to
select a valuation technique or option pricing model that meets the criteria
as
stated in the standard, which includes a binomial model and the Black-Scholes
model. The Company has elected to use the Black-Scholes model. The adoption
of
SFAS No. 123R, applying the “modified prospective method,” as elected by the
Company, requires the Company to value stock options prior to its adoption
of
SFAS No. 123R under the fair value method and expense these amounts over the
remaining vesting period of the stock options. SFAS No. 123R requires that
the
Company estimate forfeitures for stock options and reduce compensation expense
accordingly. The Company has reduced its stock compensation expense by the
assumed forfeiture rate and will evaluate experience against this forfeiture
rate going forward.
During
the first six months of 2007 and 2006, the Company recognized stock option
compensation costs of $0.2 million in each period. In each of the second
quarters of fiscal years 2007 and 2006, the Company recognized stock option
compensation costs of $0.1 million. The remaining unrecognized compensation
cost related to unvested awards at July 1, 2007, approximated $0.4 million,
and
the weighted average period of time over which this cost will be recognized
is
approximately two years.
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants issued in the first six months of fiscal years
2007
and 2006:
|
|
Six
Months Ended
July
1, 2007
|
|
Six
Months Ended
July 2, 2006
|
|
Risk
free interest rate
|
|
|
4.73
|
%
|
|
4.57
|
%
|
Expected
life
|
|
|
3.25
years
|
|
|
3.11
years
|
|
Expected
volatility
|
|
|
60
|
%
|
|
60
|
%
|
Expected
dividend yield
|
|
|
0.51
|
%
|
|
0
|
%
|
The
weighted average grant date fair value of stock options granted during the
first
six months of fiscal 2007 was $6.99 per share.
The
following table summarizes stock options outstanding as of July 1, 2007, as
well
as activity during the six months then ended:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at December 31, 2006
|
|
|
1,759,000
|
|
$
|
6.07
|
|
Granted
|
|
|
30,000
|
|
|
15.66
|
|
Exercised
|
|
|
518,000
|
|
|
6.35
|
|
Forfeited
or canceled
|
|
|
19,000
|
|
|
10.44
|
|
Outstanding
at July 1, 2007 (a)
|
|
|
1,252,000
|
|
$
|
6.20
|
|
|
|
|
|
|
|
|
|
Exercisable
at July 1, 2007 (b)
|
|
|
1,064,000
|
|
$
|
5.73
|
|
(a)
At
July 1, 2007, the weighted-average remaining contractual life of options
outstanding was 3.3 years.
(b)
At
July 1, 2007, the weighted-average remaining contractual life of options
exercisable was 3.1 years.
At
July
1, 2007, the aggregate intrinsic value of options outstanding and options
exercisable was $15.2 million and $13.4 million, respectively (the intrinsic
value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option).
Cash
proceeds and intrinsic value related to total stock options exercised during
the
first six months of fiscal years 2007 and 2006 are provided in the following
table:
|
|
Six
Months
Ended
|
|
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
(In
thousands)
|
|
Proceeds
from stock options exercised
|
|
$
|
2,773
|
|
$
|
5,650
|
|
Intrinsic
value of stock options exercised
|
|
$
|
5,772
|
|
$
|
6,780
|
|
Restricted
Stock Awards
During
the six months ended July 1, 2007, and July 2, 2006, the Company granted
restricted stock awards for 277,000 and 394,000 shares, respectively, of Class
B
common stock. These awards (or a portion thereof) vest with respect to each
recipient over a three to five-year period from the date of grant, provided
the
individual remains in the employment or service of the Company as of the vesting
date. Additionally, these shares (or a portion thereof) could vest earlier
upon
the attainment of certain performance criteria, in the event of a change in
control of the Company, or upon involuntary termination without cause.
Compensation
expense related to restricted stock grants was $3.6 million and $1.6 million
for
the six months ended July 1, 2007, and July 2, 2006, respectively. SFAS No.
123R
requires that the Company estimate forfeitures for restricted stock and reduce
compensation expense accordingly. The Company has reduced its expense by the
assumed forfeiture rate and will evaluate experience against this forfeiture
rate going forward.
The
following table summarizes restricted stock activity as of July 1, 2007, and
during the six months then ended:
|
|
Shares
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Outstanding
at December 31, 2006
|
|
|
1,311,000
|
|
$
|
8.00
|
|
Granted
|
|
|
277,000
|
|
$
|
15.00
|
|
Vested
|
|
|
620,000
|
|
$
|
8.59
|
|
Forfeited
or canceled
|
|
|
1,500
|
|
|
8.64
|
|
Outstanding
at July 1, 2007
|
|
|
966,500
|
|
$
|
9.56
|
|
As
of
July 1, 2007, the unrecognized total compensation cost related to unvested
restricted stock was $5.9 million. That cost is expected to be recognized by
the
end of 2011.
As
stated
above, SFAS No. 123R requires the Company to estimate forfeitures in calculating
the expense relating to stock-based compensation, as opposed to only recognizing
these forfeitures and the corresponding reduction in expense as they occur.
In
prior years, the Company did not estimate the forfeitures of its restricted
stock as the expense was recorded. In accordance with the standard, the Company
is required to record a cumulative effect of the change in accounting principle
to reduce previously recognized compensation for awards not expected to vest
(i.e., forfeited or canceled awards). Upon adoption of SFAS No. 123R in the
first quarter of 2006, the Company adjusted for this cumulative effect and
recognized a reduction in stock-based compensation, which was recorded within
the selling, general and administrative expense on the Company’s consolidated
condensed statement of operations. The adjustment was not recorded as a
cumulative effect adjustment, net of tax, because the amount was not material
to
the consolidated condensed statement of operations.
NOTE
8 -
EMPLOYEE BENEFIT PLANS
The
following tables provide the components of net periodic benefit cost for the
three-month and six-month periods ended July 1, 2007, and July 2, 2006,
respectively:
|
|
Three
Months Ended
|
|
Six
Months
Ended
|
|
Defined
Benefit Retirement Plan (Europe)
|
|
July
1, 2007
|
|
July
2, 2006
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
Service
cost
|
|
$
|
718
|
|
$
|
458
|
|
$
|
1,430
|
|
$
|
904
|
|
Interest
cost
|
|
|
3,073
|
|
|
2,418
|
|
|
6,118
|
|
|
4,772
|
|
Expected
return on assets
|
|
|
(3,259
|
)
|
|
(2,721
|
)
|
|
(6,489
|
)
|
|
(5,372
|
)
|
Amortization
of prior service costs
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Recognized
net actuarial (gains)/losses
|
|
|
695
|
|
|
482
|
|
|
1,385
|
|
|
951
|
|
Amortization
of transition obligation
|
|
|
29
|
|
|
13
|
|
|
57
|
|
|
26
|
|
Net
periodic benefit cost
|
|
$
|
1,256
|
|
$
|
650
|
|
$
|
2,501
|
|
$
|
1,281
|
|
|
|
Three
Months Ended
|
|
Six
Months
Ended
|
|
Salary
Continuation Plan (SCP)
|
|
July
1, 2007
|
|
July
2, 2006
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
Service
cost
|
|
$
|
66
|
|
$
|
67
|
|
$
|
132
|
|
$
|
134
|
|
Interest
cost
|
|
|
224
|
|
|
212
|
|
|
448
|
|
|
425
|
|
Amortization
of transition obligation
|
|
|
55
|
|
|
55
|
|
|
110
|
|
|
110
|
|
Amortization
of prior service cost
|
|
|
12
|
|
|
12
|
|
|
24
|
|
|
24
|
|
Amortization
of (gain)/loss
|
|
|
72
|
|
|
80
|
|
|
144
|
|
|
160
|
|
Net
periodic benefit cost
|
|
$
|
429
|
|
$
|
426
|
|
$
|
858
|
|
$
|
853
|
|
NOTE
9 -
DISCONTINUED OPERATIONS
As
discussed above in Note 2, in the second quarter of 2007, the Company committed
to a plan to exit its Fabrics Group business segment, and in the third quarter
of 2007, the Company completed the sale. Therefore, the results for the Fabrics
Group business segment have been reported as discontinued operations. In
connection with this action, the Company also recorded write-downs for the
impairment of assets and goodwill of $17.4 million and $44.5 million,
respectively, in the first six months of 2007. In connection with the sale,
the
Company recorded the aforementioned impairments to reduce the carrying value
of
the business segment to its fair value as of July 1, 2007. In the second quarter
of 2007, the Company recorded approximately $3.8 million of direct costs to
sell the business segment which had been incurred through the end of the
quarter. At this time, the Company also expects to incur approximately $6.0
million of additional costs in connection with the sale of the business segment.
These costs are expected to be incurred before the end of 2007.
In
2004,
the Company committed to a plan to exit its owned Re:Source dealer businesses
and began to dispose of several of the dealer subsidiaries. Therefore, the
results for the owned Re:Source dealer businesses, as well as the Company’s
small Australian dealer and small residential fabrics businesses that management
also decided to exit, are reported as discontinued operations.
Summary
operating results for the above-described discontinued operations are as
follows:
|
|
Three
Months Ended
|
|
Six
Months
Ended
|
|
|
|
July
1, 2007
|
|
July
2, 2006
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
Net
sales
|
|
$
|
35,906
|
|
$
|
35,494
|
|
$
|
71,732
|
|
$
|
87,994
|
|
Loss
on operations before taxes on income
|
|
|
(18,962
|
)
|
|
(3,986
|
)
|
|
(69,380
|
)
|
|
(26,547
|
)
|
Tax
benefit
|
|
|
6,637
|
|
|
1,395
|
|
|
7,370
|
|
|
1,439
|
|
Loss
on operations, net of tax
|
|
|
(12,325
|
)
|
|
(2,591
|
)
|
|
(62,010
|
)
|
|
(25,108
|
)
|
Assets
and liabilities, including reserves, related to the above-described discontinued
operations that were held for sale consist of the following:
|
|
July
1, 2007
|
|
December
31, 2006
|
|
|
|
(In
thousands)
|
|
Current
assets
|
|
$
|
49,146
|
|
$
|
54,156
|
|
Property
and equipment
|
|
|
41,938
|
|
|
54,094
|
|
Other
assets
|
|
|
1,110
|
|
|
50,072
|
|
Current
liabilities
|
|
|
14,962
|
|
|
11,181
|
|
Other
liabilities
|
|
|
7,544
|
|
|
11,753
|
|
NOTE
10 -
RESTRUCTURING
During
the first quarter of 2006, the Company recorded a pre-tax restructuring charge
of $3.3 million. The charge reflected: (i) the consolidation and closure of
a fabrics manufacturing facility in East Douglas, Massachusetts; (ii) workforce
reduction at this facility; and (iii) a reduction in carrying value of another
fabrics facility and other assets. These activities were expected to reduce
excess capacity in the Company’s dyeing and finishing operations and improve
overall manufacturing efficiency.
A
summary
of the restructuring activities is presented below:
|
|
|
TOTAL
|
|
|
|
|
(In
thousands)
|
|
|
Facilities
consolidation
|
|
$
|
1,000
|
|
|
Workforce
reduction
|
|
|
300
|
|
|
Other
impaired assets
|
|
|
1,960
|
|
|
|
|
$
|
3,260
|
|
Of
the
total restructuring charge, approximately $0.3 million related to expenditures
for severance benefits and other similar costs, and $3.0 million related to
non-cash charges, primarily for the write-down of carrying value and disposal
of
certain assets. As of July 1, 2007, there are no significant cash payments
or
other activities remaining under the plan, as the plan was substantially
completed by the end of 2006.
Because
the restructuring charge is related to the Fabrics Group business segment,
it
has been included in discontinued operations in the consolidated condensed
statement of operations for the first six months of 2006.
NOTE
11 -
IMPAIRMENT OF GOODWILL AND OTHER ASSETS
In
the
first quarter of 2007, the Company recorded charges for impairment of goodwill
of $44.5 million and impairment of other intangible assets of $3.8 million
related to its Fabrics Group business segment. The Company was exploring
possible strategic options with respect to its fabrics business, and its
analyses indicated that the carrying value of the assets of the fabrics business
exceeded their fair value. When such an indication is present, the Company
measures potential goodwill and other asset impairments based on an allocation
of the estimated fair value of the reporting unit to its underlying assets
and
liabilities. An impairment loss is recognized to the extent that the reporting
unit’s recorded goodwill exceeds the implied fair value of goodwill. In addition
to the impairment of goodwill, the Company determined that the other intangible
assets of the business unit were impaired as well. As discussed above in Note
2,
in the second quarter of 2007, the Company entered into an agreement to sell
its
fabrics business unit for approximately $70.0 million. As a result of this
agreed-upon purchase price, the Company recorded an impairment of assets of
approximately $13.6 million in the second quarter of 2007. This impairment
was
determined based upon the fair value of the business unit as compared to the
fair value represented by the purchase price. Given the nature of the Company’s
assets and liabilities, the impairment charge was a reduction of carrying value
of property, plant and equipment, as it was determined that all other assets
were carried at a value approximating fair value. These impairment charges
have
been included in discontinued operations in the consolidated condensed statement
of operations for the first six months of 2007.
During
the first quarter of 2006, in connection with the sale of its European fabrics
business (described in more detail above in Note 2), the Company recorded a
charge of $20.7 million for the impairment of goodwill related to its fabrics
reporting unit and those European operations. This charge was based on a review
of the Company’s carrying value of goodwill at its fabrics facilities as
compared to the potential fair value as represented by the proposed sale price.
This impairment charge has been included in discontinued operations in the
consolidated condensed statement of operations for the first six months of
2006.
NOTE
12 -
SALE OF PANDEL, INC.
On
March
7, 2007, the Company sold its subsidiary Pandel, Inc. for $1.4 million to an
entity formed by the general manager of Pandel. The operations of Pandel
represent the Company’s Specialty Products segment. Pandel primarily produces
vinyl carpet tile backing and specialty mat and foam products. As a result
of
this sale, the Company recorded a loss on disposition of $1.9 million in
the first quarter of 2007. The total assets of this business were $3.3 million,
comprised primarily of inventory and accounts receivable. Total liabilities
related to this business were $0.4 million. In the second quarter of 2006,
Pandel had net sales of $2.8 million. In the first six months of 2007 and 2006,
Pandel had net sales of $2.2 million and $5.9 million, respectively. Prior
to
the sale, certain of Pandel’s production assets were conveyed to another
subsidiary of the Company, where they will continue to be used in its carpet
tile backing process.
NOTE
13 -
SUPPLEMENTAL CASH FLOW INFORMATION
Cash
payments for interest amounted to $19.2 million and $22.0 million for the six
months ended July 1, 2007, and July 2, 2006, respectively. Income tax payments
amounted to $8.3 million and $6.7 million for the six months ended July 1,
2007,
and July 2, 2006, respectively.
NOTE
14 -
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115.” This standard permits an
entity to choose to measure certain financial assets and liabilities at fair
value. SFAS No. 159 also revises provisions of SFAS No. 115 that apply to
available-for-sale and trading securities. This statement is effective for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the effect, if any, that the adoption of this pronouncement will
have
on its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company is currently evaluating the effect, if any,
that
the adoption of this pronouncement will have on its consolidated financial
statements.
In
September 2006, the Emerging Issues Task Force (“EITF”) of the FASB reached
consensus on EITF Issue No. 06-04, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements” (“EITF 06-04”). The scope of EITF 06-04 is limited to the
recognition of a liability and related compensation costs for endorsement
split-dollar life insurance arrangements that provide a benefit to an employee
that extends to postretirement periods. EITF 06-04 is effective for fiscal
years
beginning after December 15, 2007, and the Company is currently evaluating
the
effect of this standard on its consolidated financial statements.
In
June
2006, the EITF reached a consensus on Issue No. 06-03, “How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-03”).
EITF 06-03 concludes that (a) the scope of this issue includes any tax
assessed by a governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer, and (b) the
presentation of taxes within the scope on either a gross or a net basis is
an
accounting policy decision that should be disclosed under Opinion 22.
Furthermore, EITF 06-03 states that for taxes reported on a gross basis, a
company should disclose the amounts of those taxes in interim and annual
financial statements for each period for which an income statement is presented.
The consensus, which requires only disclosure changes, is effective for periods
beginning after December 15, 2006. As the Company has historically recognized
such taxes on a net basis, the adoption of this standard did not have a material
effect on its results of operations or financial position.
NOTE
15 -
INCOME TAXES
In
July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes.” In summary, FIN 48 requires that all tax
positions subject to SFAS No. 109, “Accounting for Income Taxes,” be
analyzed using a two-step approach. The first step requires an entity to
determine if a tax position is more-likely-than-not to be sustained upon
examination. In the second step, the tax benefit is measured as the largest
amount of benefit, determined on a cumulative probability basis, that is
more-likely-than-not to be realized upon ultimate settlement. FIN 48 was
effective as of January 1, 2007, with any adjustment in a company’s tax
provision being accounted for as a cumulative effect of accounting change in
beginning equity. On January 1, 2007, the Company adopted the provisions of
FIN
48. As required by FIN 48, the cumulative effect of applying the provisions
of the Interpretation have been reported as an adjustment to the Company’s
retained earnings balance as of January 1, 2007. The Company recognized a
$4.6 million increase in its liability for unrecognized tax benefits with a
corresponding decrease to the fiscal year 2007 opening balance of retained
earnings.
There
have been no material changes to the Company’s unrecognized tax benefits during
the six months ended July 1, 2007.
NOTE
16 -
SUPPLEMENTAL CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS
The
Guarantor Subsidiaries, which consist of the Company's principal domestic
subsidiaries, are guarantors of the Company's 10.375% senior notes due 2010,
its
7.3% senior notes due 2008, and its 9.5% senior subordinated notes due 2014.
These guarantees are full and unconditional. The Supplemental Guarantor
Financial Statements are presented herein pursuant to requirements of the
Commission.
INTERFACE,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
FOR
THE
THREE MONTHS ENDED JULY 1, 2007
|
|
GUARANTOR
SUBSIDIARIES
|
|
NON-GUARANTOR
SUBSIDIARIES
|
|
INTERFACE,
INC.
(PARENT
CORPORATION)
|
|
CONSOLIDATION
AND ELIMINATION ENTRIES
|
|
CONSOLIDATED
TOTALS
|
|
|
|
(IN
THOUSANDS)
|
|
Net
sales
|
|
$
|
168,050
|
|
$
|
131,650
|
|
$
|
--
|
|
$
|
(34,738
|
)
|
$
|
264,962
|
|
Cost
of sales
|
|
|
122,547
|
|
|
84,928
|
|
|
--
|
|
|
(34,738
|
)
|
|
172,737
|
|
Gross
profit on sales
|
|
|
45,503
|
|
|
46,722
|
|
|
--
|
|
|
--
|
|
|
92,225
|
|
Selling,
general and administrative expenses
|
|
|
27,261
|
|
|
24,696
|
|
|
9,375
|
|
|
--
|
|
|
61,332
|
|
Operating
income (loss)
|
|
|
18,242
|
|
|
22,026
|
|
|
(9,375
|
)
|
|
--
|
|
|
30,893
|
|
Interest/Other
expense
|
|
|
2,146
|
|
|
2,035
|
|
|
5,592
|
|
|
--
|
|
|
9,773
|
|
Income
(loss) before taxes on income and equity in income of
subsidiaries
|
|
|
16,096
|
|
|
19,991
|
|
|
(14,967
|
)
|
|
--
|
|
|
21,120
|
|
Income
tax (benefit) expense
|
|
|
12,337
|
|
|
5,296
|
|
|
(9,836
|
)
|
|
--
|
|
|
7,797
|
|
Equity
in income (loss) of subsidiaries
|
|
|
--
|
|
|
--
|
|
|
6,129
|
|
|
(6,129
|
)
|
|
--
|
|
Income
(loss) from continuing operations
|
|
|
3,759
|
|
|
14,695
|
|
|
998
|
|
|
(6,129
|
)
|
|
13,323
|
|
Loss
on discontinued operations, net of tax
|
|
|
(12,325
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(12,325
|
)
|
Net
income (loss)
|
|
$
|
(8,566
|
)
|
$
|
14,695
|
|
$
|
998
|
|
$
|
(6,129
|
)
|
$
|
998
|
|
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
FOR
THE
SIX MONTHS ENDED JULY 1, 2007
|
|
GUARANTOR
SUBSIDIARIES
|
|
NON-
GUARANTOR
SUBSIDIARIES
|
|
INTERFACE,
INC.
(PARENT
CORPORATION)
|
|
CONSOLIDATION
AND
ELIMINATION
ENTRIES
|
|
CONSOLIDATED
TOTALS
|
|
|
|
(IN
THOUSANDS)
|
|
Net
sales
|
|
$
|
317,133
|
|
$
|
254,818
|
|
$
|
--
|
|
$
|
(63,497
|
)
|
$
|
508,454
|
|
Cost
of sales
|
|
|
230,809
|
|
|
165,689
|
|
|
--
|
|
|
(63,497
|
)
|
|
333,001
|
|
Gross
profit on sales
|
|
|
86,324
|
|
|
89,129
|
|
|
--
|
|
|
--
|
|
|
175,453
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
47,373
|
|
|
53,791
|
|
|
17,215
|
|
|
--
|
|
|
118,379
|
|
Loss
on disposal - Specialty Products
|
|
|
1,873
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
1,873
|
|
Operating
income (loss)
|
|
|
37,078
|
|
|
35,338
|
|
|
(17,215
|
)
|
|
--
|
|
|
55,201
|
|
Interest/Other
expense
|
|
|
3,340
|
|
|
3,086
|
|
|
12,890
|
|
|
--
|
|
|
19,316
|
|
Income
(loss) before taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
equity in income of subsidiaries
|
|
|
33,738
|
|
|
32,252
|
|
|
(30,105
|
)
|
|
--
|
|
|
35,885
|
|
Income
tax (benefit) expense
|
|
|
17,085
|
|
|
10,330
|
|
|
(13,922
|
)
|
|
--
|
|
|
13,493
|
|
Equity
in income (loss) of subsidiaries
|
|
|
--
|
|
|
--
|
|
|
(23,435
|
)
|
|
23,435
|
|
|
--
|
|
Income
(loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
16,653
|
|
|
21,922
|
|
|
(39,618
|
)
|
|
23,435
|
|
|
22,392
|
|
Income
(loss) on discontinued operations, net of tax
|
|
|
(62,010
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(62,010
|
)
|
Net
income (loss)
|
|
$
|
(45,357
|
)
|
$
|
21,922
|
|
$
|
(39,618
|
)
|
$
|
23,435
|
|
$
|
(39,618
|
)
|
CONDENSED
CONSOLIDATING BALANCE SHEET
JULY
1,
2007
|
|
GUARANTOR
SUBSIDIARIES
|
|
NON-GUARANTOR
SUBSIDIARIES
|
|
INTERFACE,
INC.
(PARENT
CORPORATION)
|
|
CONSOLIDATION
AND ELIMINATION ENTRIES
|
|
CONSOLIDATED
TOTALS
|
|
|
|
(IN
THOUSANDS)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
350
|
|
$
|
25,132
|
|
$
|
63,864
|
|
$
|
--
|
|
$
|
89,346
|
|
Accounts
receivable
|
|
|
67,627
|
|
|
80,960
|
|
|
3,447
|
|
|
--
|
|
|
152,034
|
|
Inventories
|
|
|
64,907
|
|
|
63,539
|
|
|
--
|
|
|
--
|
|
|
128,446
|
|
Prepaids
and deferred income taxes
|
|
|
8,279
|
|
|
11,345
|
|
|
8,385
|
|
|
--
|
|
|
28,009
|
|
Assets
of business held for sale
|
|
|
91,003
|
|
|
1,191
|
|
|
--
|
|
|
--
|
|
|
92,194
|
|
Total
current assets
|
|
|
232,166
|
|
|
182,167
|
|
|
75,696
|
|
|
--
|
|
|
490,029
|
|
Property
and equipment less accumulated depreciation
|
|
|
67,530
|
|
|
73,401
|
|
|
5,677
|
|
|
--
|
|
|
146,608
|
|
Investment
in subsidiaries
|
|
|
196,375
|
|
|
148,058
|
|
|
74,107
|
|
|
(418,540
|
)
|
|
--
|
|
Goodwill
|
|
|
68,168
|
|
|
68,965
|
|
|
--
|
|
|
--
|
|
|
137,133
|
|
Other
assets
|
|
|
10,999
|
|
|
24,378
|
|
|
89,956
|
|
|
--
|
|
|
125,333
|
|
|
|
$
|
575,238
|
|
$
|
496,969
|
|
$
|
245,436
|
|
$
|
(418,540
|
)
|
$
|
899,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
$
|
79,675
|
|
$
|
89,569
|
|
$
|
90,295
|
|
$
|
--
|
|
$
|
259,539
|
|
Long-term
debt, less current maturities
|
|
|
8,765
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
8,765
|
|
Senior
notes and senior subordinated notes
|
|
|
--
|
|
|
--
|
|
|
310,000
|
|
|
--
|
|
|
310,000
|
|
Deferred
income taxes
|
|
|
6,683
|
|
|
6,395
|
|
|
(4,882
|
)
|
|
--
|
|
|
8,196
|
|
Other
|
|
|
4,065
|
|
|
44,358
|
|
|
16,788
|
|
|
--
|
|
|
65,211
|
|
Total
liabilities
|
|
|
99,188
|
|
|
140,322
|
|
|
412,201
|
|
|
--
|
|
|
651,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
1,624
|
|
|
4,869
|
|
|
--
|
|
|
--
|
|
|
6,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
preferred stock
|
|
|
57,891
|
|
|
--
|
|
|
--
|
|
|
(57,891
|
)
|
|
--
|
|
Common
stock
|
|
|
94,145
|
|
|
102,199
|
|
|
6,146
|
|
|
(196,344
|
)
|
|
6,146
|
|
Additional
paid-in capital
|
|
|
191,411
|
|
|
12,525
|
|
|
329,799
|
|
|
(203,936
|
)
|
|
329,799
|
|
Retained
earnings (deficit)
|
|
|
132,138
|
|
|
280,657
|
|
|
(493,919
|
)
|
|
39,631
|
|
|
(41,493
|
)
|
Foreign
currency translation adjustment
|
|
|
(1,159
|
)
|
|
(191
|
)
|
|
(5,304
|
)
|
|
--
|
|
|
(6,654
|
)
|
Pension
liability
|
|
|
--
|
|
|
(43,412
|
)
|
|
(3,487
|
)
|
|
--
|
|
|
(46,899
|
)
|
|
|
$
|
575,238
|
|
$
|
496,969
|
|
$
|
245,436
|
|
$
|
(418,540
|
)
|
$
|
899,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR
THE
SIX MONTHS
ENDED
JULY 1, 2007
|
|
GUARANTOR
SUBSIDIARIES
|
|
NON-GUARANTOR
SUBSIDIARIES
|
|
INTERFACE,
INC.
(PARENT
CORPORATION)
|
|
CONSOLIDATION
AND ELIMINATION ENTRIES
|
|
CONSOLIDATED
TOTALS
|
|
|
|
(IN
THOUSANDS)
|
|
Net
cash provided by (used for) operating activities
|
|
$
|
50,905
|
|
$
|
(13,490
|
)
|
$
|
(13,860
|
)
|
$
|
--
|
|
$
|
23,555
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of plant and equipment
|
|
|
(13,092
|
)
|
|
(4,345
|
)
|
|
(510
|
)
|
|
--
|
|
|
(17,947
|
)
|
Investing
cash flow from discontinued operations
|
|
|
(6,015
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(6,015
|
)
|
Other
|
|
|
241
|
|
|
--
|
|
|
(7,404
|
)
|
|
--
|
|
|
(7,163
|
)
|
Net
cash used for investing activities
|
|
|
(18,866
|
)
|
|
(4,345
|
)
|
|
(7,914
|
)
|
|
--
|
|
|
(31,125
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
borrowings
|
|
|
--
|
|
|
8,743
|
|
|
--
|
|
|
--
|
|
|
8,743
|
|
Repurchase
of senior notes
|
|
|
--
|
|
|
--
|
|
|
(22,400
|
)
|
|
--
|
|
|
(22,400
|
)
|
Proceeds
from issuance of common stock
|
|
|
--
|
|
|
--
|
|
|
2,773
|
|
|
--
|
|
|
2,773
|
|
Dividends
paid
|
|
|
--
|
|
|
--
|
|
|
(2,450
|
)
|
|
--
|
|
|
(2,450
|
)
|
Net
cash provided by (used for) financing activities
|
|
|
--
|
|
|
8,743
|
|
|
(22,077
|
)
|
|
--
|
|
|
(13,334
|
)
|
Effect
of exchange rate change on cash
|
|
|
--
|
|
|
1,093
|
|
|
--
|
|
|
--
|
|
|
1,093
|
|
Net
increase (decrease) in cash
|
|
|
32,039
|
|
|
(7,999
|
)
|
|
(43,851
|
)
|
|
--
|
|
|
(19,811
|
)
|
Cash
at beginning of period
|
|
|
5,338
|
|
|
33,131
|
|
|
70,688
|
|
|
--
|
|
|
109,157
|
|
Cash
at end of period
|
|
$
|
37,377
|
|
$
|
25,132
|
|
$
|
26,837
|
|
$
|
--
|
|
$
|
89,346
|
|
ITEM
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our
discussions below in this Item 2 are based upon the more detailed discussions
about our business, operations and financial condition included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, under Item
7 of
that Form 10-K. Our discussions here focus on our results during the quarter
ended, or as of, July 1, 2007, and the comparable period of 2006 for comparison
purposes, and, to the extent applicable, any material changes from the
information discussed in that Form 10-K or other important intervening
developments or information since that time. These discussions should be read
in
conjunction with that Form 10-K for more detailed and background
information.
Forward-Looking
Statements
This
report contains statements which may constitute "forward-looking statements"
within the meaning of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform
Act
of 1995. Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements include
risks and uncertainties associated with economic conditions in the commercial
interiors industry as well as the risks and uncertainties discussed under the
heading “Risk Factors” included in Item 1A of the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2006, which discussion is
hereby incorporated by reference. The Company undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
Sale
of
Fabrics Group Business Segment
In
July
2007, subsequent to the end of the second quarter of 2007, we completed the
sale
of our Fabrics Group business segment to a third party pursuant to an agreement
we entered into in the second quarter of 2007. Following working capital and
other adjustments provided for in the agreement, we received $60.7 million
in
cash at the closing of the transaction. We may receive up to $6.5 million of
additional purchase price under the agreement pursuant to an earn-out
arrangement focused on the performance of that business segment, as owned and
operated by the purchaser, during the 18-month period following the closing.
As
discussed in the Notes to Consolidated Condensed Financial Statements in Item
1
of Part 1, in the first quarter of 2007, we recorded charges for impairment
of
goodwill of $44.5 million and impairment of other intangible assets of $3.8
million related to the Fabrics Group segment. In addition, as a result of the
agreed-upon purchase price for the segment, we recorded an additional impairment
of assets of approximately $13.6 million in the second quarter of
2007.
Previously,
in April 2006, we sold our European component of the fabrics business (Camborne
Holdings Limited) for $28.8 million to an entity formed by the business’s
management team. In connection with the sale, we recorded a pre-tax non-cash
charge of $20.7 million for the impairment of goodwill in the first quarter
of
2006 and a loss on disposal of $1.7 million in the second quarter of last
year. For the first six months of 2006, the European fabrics business generated
revenue of $17.3 million and operating loss (after the $20.7 million impairment
of goodwill charge) of $19.6 million.
As
described below, the results of operations of the former Fabrics Group business
segment, including the European component as well as the related impairment
charges and loss on disposal discussed above, are included as part of our
discontinued operations.
Discontinued
Operations
As
described above, in the second quarter of 2007, we entered into an agreement
to
sell our Fabrics Group business segment to a third party, and we completed
the
sale in the third quarter of 2007. In addition, in 2004, we decided to exit
our
owned Re:Source dealer businesses, which were part of a broader network
comprised of both owned and aligned dealers that sell and install floorcovering
products, and began to dispose of several of our dealer subsidiaries. We now
have sold or terminated all ongoing operations of our dealer businesses, and
in
some cases we are completing their wind-down through subcontracting
arrangements.
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” we have reported the results of operations for the Re:Source
dealer businesses (as well as the results of operations of a small Australian
dealer business and a small residential fabrics business that we also decided
to
exit at that time), and the results of operations for the former Fabrics Group
business segment (including the European component which was sold in April
2006), for all periods reflected herein, as “discontinued operations.”
Consequently, our discussion of revenues or sales and other results of
operations (except for net income or loss amounts), including percentages
derived from or based on such amounts, excludes these discontinued operations
unless we indicate otherwise.
Our
discontinued operations had net sales of $35.9 million and $35.5 million in
the
three-month periods ended July 1, 2007, and July 2, 2006, respectively, and
had
net sales of $71.7 million and $88.0 million in the six months ended July 1,
2007, and July 2, 2006, respectively (these results are included in our
statements of operations as part of the “Loss from Discontinued Operations, Net
of Taxes”). Loss from operations of these businesses, net of tax, was $12.3
million and $2.6 million in the three-month periods ended July 1, 2007 and
July
2, 2006, respectively, and $62.0 million and $25.1 million in the six months
ended July 1, 2007, and July 2, 2006, respectively.
Restructuring
Charge
We
recorded a pre-tax restructuring charge of $3.3 million in the first quarter
of
2006. The charge reflected: (1) the closure of our fabrics manufacturing
facility in East Douglas, Massachusetts, and consolidation of those operations
into our facility in Elkin, North Carolina; (2) workforce reduction at the
East
Douglas, Massachusetts facility; and (3) a reduction in carrying value of
another fabrics facility and other assets. The restructuring charge was
comprised of $0.3 million of cash expenditures for severance benefits and other
similar costs, and $3.0 million of non-cash charges, primarily for the
write-down of carrying value and disposal of assets. Because this restructuring
charge related to the Fabrics Group business segment, it is now included as
part
of our discontinued operations.
General
During
the quarter ended July 1, 2007, we had net sales of $265.0 million, compared
with net sales of $223.2 million in the second quarter last year. Fluctuations
in currency exchange rates positively impacted 2007 second quarter sales by
2%
(approximately $6 million), compared with the prior year period. During the
first six months of fiscal 2007, we had net sales of $508.5 million, compared
with net sales of $421.3 million in the first six months of last year.
Fluctuations in currency exchange rates positively impacted sales in the first
six months of 2007 by 3% (approximately $13 million), compared with the
prior year period.
During
the second quarter of 2007, after the impairment charge described above, we
had
net income of $1.0 million, or $0.02 per diluted share, compared with net
income of $5.9 million, or $0.11 per diluted share, in the second quarter last
year. The 2006 second quarter results included a loss on disposal of
discontinued operations (net of tax) of $1.7 million, or $0.03 per diluted
share.
In
the
first quarter of this year, we sold our Pandel, Inc. business for $1.4 million
and recorded a loss of $1.9 million on this sale. (Pandel comprised the
Company’s Specialty Products segment.) The impairment of assets related to the
sale of the Fabrics Group business segment and the loss on disposal of Pandel,
Inc. led to our net loss of $39.6 million, or $0.64 per diluted share, during
the first six months of 2007. The goodwill impairment and restructuring charges
described above led to our net loss of $11.2 million, or $0.21 per share, during
the first six months of 2006.
Results
of Operations
The
following table presents, as a percentage of net sales, certain items included
in our Consolidated Condensed Statements of Operations for the three-month
and
six-month periods ended July 1, 2007, and July 2, 2006,
respectively:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
July
1, 2007
|
|
July
2, 2006
|
|
July
1, 2007
|
|
July
2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
65.2
|
|
|
66.1
|
|
|
65.5
|
|
|
65.9
|
|
Gross
profit on sales
|
|
|
34.8
|
|
|
33.9
|
|
|
34.5
|
|
|
34.1
|
|
Selling,
general and administrative expenses
|
|
|
23.2
|
|
|
23.1
|
|
|
23.3
|
|
|
23.6
|
|
Loss
on disposal of Specialty Products
|
|
|
--
|
|
|
--
|
|
|
0.4
|
|
|
--
|
|
Operating
income
|
|
|
11.7
|
|
|
10.8
|
|
|
10.9
|
|
|
10.5
|
|
Interest/Other
expense
|
|
|
3.7
|
|
|
5.1
|
|
|
3.8
|
|
|
5.4
|
|
Income
from continuing operations before tax expense
|
|
|
8.0
|
|
|
5.7
|
|
|
7.1
|
|
|
5.1
|
|
Income
tax expense
|
|
|
2.9
|
|
|
1.9
|
|
|
2.7
|
|
|
1.8
|
|
Income
from continuing operations
|
|
|
5.0
|
|
|
3.8
|
|
|
4.4
|
|
|
3.3
|
|
Discontinued
operations, net of tax
|
|
|
(4.7
|
)
|
|
(0.4
|
)
|
|
(12.2
|
)
|
|
(5.6
|
)
|
Loss
on disposal
|
|
|
--
|
|
|
(0.8
|
)
|
|
--
|
|
|
(0.4
|
)
|
Net
income (loss)
|
|
|
0.4
|
|
|
2.6
|
|
|
(7.8
|
)
|
|
(2.7
|
)
|
Below
we
provide information regarding net sales for each of our three operating
segments, and analyze those results for the three-month and six-month periods
ended July 1, 2007, and July 2, 2006, respectively.
Net
Sales by Business Segment
Net
sales
by operating segment and for our Company as a whole were as follows for the
three-month and six-month periods ended July 1, 2007, and July 2, 2006,
respectively:
|
|
Three
Months Ended
|
|
Percentage
|
|
Net
Sales By Segment
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Modular
Carpet
|
|
$
|
225,523
|
|
$
|
186,475
|
|
|
20.9
|
%
|
Bentley
Prince Street
|
|
|
39,439
|
|
|
33,932
|
|
|
16.2
|
%
|
Specialty
Products (sold in March 2007)
|
|
|
--
|
|
|
2,777
|
|
|
*
|
|
Total
|
|
$
|
264,962
|
|
$
|
223,184
|
|
|
18.7
|
%
|
*
Not
meaningful.
|
|
Six
Months Ended
|
|
Percentage
|
|
Net
Sales By Segment
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Modular
Carpet
|
|
$
|
430,777
|
|
$
|
352,358
|
|
|
22.3
|
%
|
Bentley
Prince Street
|
|
|
75,485
|
|
|
63,032
|
|
|
19.8
|
%
|
Specialty
Products (sold in March 2007)
|
|
|
2,192
|
|
|
5,928
|
|
|
(63.0
|
%)
|
Total
|
|
$
|
508,454
|
|
$
|
421,318
|
|
|
20.7
|
%
|
Modular
Carpet Segment. For
the
quarter ended July 1, 2007, net sales for the Modular Carpet segment
increased
$39.1
million (20.9%) versus the comparable period in 2006. On a geographic basis,
we
experienced significant increases in net sales in the Americas, Europe and
Asia-Pacific (up 21.1%, 18.8% and 24.7%, respectively) for the quarter ended
July 1, 2007, versus the comparable period in 2006. Sales growth in the Americas
is primarily attributable to the improving corporate office market, although
we
also saw a significant increase in our sales into the education, healthcare,
government and retail market segments in North America. Sales growth in Europe
is primarily attributable to improving economic conditions in that region,
while
sales growth in Asia-Pacific is attributable in large part to a relatively
good
economic climate in that region.
For
the
six months ended July 1, 2007, net sales for the Modular Carpet segment
increased
$78.4
million (22.3%) versus the comparable period in 2006. On a geographic basis,
we
experienced significant increases in net sales in the Americas, Europe and
Asia-Pacific (up 19.6%, 24.7% and 22.8%, respectively) for the six months ended
July 1, 2007, versus the comparable period in 2006. Sales growth in the Americas
is primarily attributable to the improving corporate office market, although
we
also saw a significant increase in our sales into the education, healthcare,
government and residential market segments in North America. Sales growth in
Europe is primarily attributable to improving economic conditions in that
region, while sales growth in Asia-Pacific is attributable in large part to
a
relatively good economic climate in that region.
Bentley
Prince Street Segment. In
our
Bentley Prince Street segment, net sales for the quarter ended July 1, 2007,
increased $5.5 million (16.2%) versus the comparable period in 2006. This
growth was attributable primarily to increased sales in the hospitality and
corporate office market segments.
For
the
six months ended July 1, 2007, net sales for our Bentley Prince Street segment
increased $12.5 million (19.8%) versus the comparable period in 2006. This
growth was attributable primarily to increased sales in the hospitality,
corporate office and institutional market segments.
Specialty
Products Segment. Because
we sold Pandel, Inc. (which comprised the Specialty Products segment) on March
7, 2007, we no longer had sales in the Specialty Products segment in the quarter
ended July 1, 2007. For the six months ended July 1, 2007, all of our net
sales for the Specialty Products segment were derived in the first quarter
of
2007, and thus are not comparable to the six-month period in 2006.
Cost
and Expenses
Company
Consolidated. The
following table presents, on a consolidated basis for our operations, our
overall cost of sales and selling, general and administrative expenses for
the
three-month and six-month periods ended July 1, 2007, and July 2, 2006,
respectively:
|
|
Three
Months Ended
|
|
Percentage
|
|
Cost
and Expenses
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Cost
of sales
|
|
$
|
172,737
|
|
$
|
147,476
|
|
|
17.1
|
%
|
Selling,
general and administrative expenses
|
|
|
61,332
|
|
|
51,617
|
|
|
18.8
|
%
|
Total
|
|
$
|
234,069
|
|
$
|
199,093
|
|
|
17.6
|
%
|
|
|
Six
Months Ended
|
|
Percentage
|
|
Cost
and Expenses
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Cost
of sales
|
|
$
|
333,001
|
|
$
|
277,686
|
|
|
19.9
|
%
|
Selling,
general and administrative expenses
|
|
|
118,379
|
|
|
99,455
|
|
|
19.0
|
%
|
Total
|
|
$
|
451,380
|
|
$
|
377,141
|
|
|
19.7
|
%
|
For
the
quarter ended July 1, 2007, our cost of sales increased $25.3 million (17.1%)
versus the comparable period in 2006, primarily due to increased product ($16.7
million) and labor ($2.5 million) costs associated with increased production
levels during the second quarter of 2007. Our raw material prices in the second
quarter 2007 were approximately equivalent to those in the second quarter of
2006. In addition, the translation of Euros into U.S. dollars resulted in an
approximately $3.3 million increase in the cost of goods sold during the second
quarter 2007 compared with the same period in 2006. As a percentage of net
sales, cost of sales decreased to 65.2% for the quarter ended July 1, 2007,
versus 66.1% for the comparable period in 2006. The percentage decrease was
primarily due to increased price levels and improved manufacturing efficiencies
in our European modular carpet and Bentley Prince Street
operations.
For
the
six months ended July 1, 2007, our cost of sales increased $55.3 million (19.9%)
versus the comparable period in 2006, primarily due to increased product ($36.5
million) and labor ($5.5 million) costs associated with increased production
levels during the first six months of 2007. Our raw material prices in the
first
six months of 2007 were approximately equivalent to those in the first six
months of 2006. In addition, the translation of Euros into U.S. dollars resulted
in an approximately $7.7 million increase in the cost of goods sold during
the
first six months of 2007 compared with the same period in 2006. As a percentage
of net sales, cost of sales decreased to 65.5% for the six months ended July
1,
2007, versus 65.9% for the comparable period in 2006. The percentage decrease
was primarily due to increased price levels and improved manufacturing
efficiencies in our European modular carpet and Bentley Prince Street
operations.
For
the
quarter ended July 1, 2007, our selling, general and administrative expenses
increased $9.7 million (18.8%) versus the comparable period in 2006. The primary
components of this increase were: (1) a $2.7 million increase in selling
expenses, commensurate with the increase in sales volume, (2) a $2.0 million
increase in expenses due to the translation of foreign currency into U.S.
dollars, (3) $1.5 million related to incremental performance vesting of
restricted stock and other one-time incentive programs in the second quarter
of
2007 compared with performance vesting in the second quarter of 2006, and (4)
$1.2 million of increased marketing expense as we continue to invest in our
marketing platforms. Notwithstanding these items, as a percentage of net sales,
selling, general and administrative expenses remained stable as a direct result
of our continued cost control measures, increasing only slightly for the quarter
ended July 1, 2007, to 23.2% from 23.1% for the comparable period in
2006.
For
the
six months ended July 1, 2007, our selling, general and administrative expenses
increased $18.9 million (19.0%) versus the comparable period in 2006. The
primary components of these increases were: (1) a $4.5 million increase in
expenses due to the translation of Euros into U.S. dollars, (2) a $4.0 million
increase in selling expenses, commensurate with the increase in sales volume,
(3) $2.1 million of increased marketing expense as we continue to invest in
our
marketing platforms, and (4) $2.5 million related to incremental performance
vesting of restricted stock and other one-time incentive programs in the first
six months of 2007 compared with performance vesting in the first six months
of
2006. However, as a percentage of net sales, selling, general and administrative
expenses decreased to 23.3% for the six months ended July 1, 2007, versus 23.6%
for the comparable period in 2006, a direct result of our continued cost control
measures.
Cost
and Expenses by Segment. The
following table presents the combined cost of sales and selling, general and
administrative expenses for each of our operating segments:
Cost
of Sales and Selling, General and
|
|
Three
Months Ended
|
|
Percentage
|
|
Administrative
Expenses (Combined)
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Modular
Carpet
|
|
$
|
193,904
|
|
$
|
162,841
|
|
|
19.1
|
%
|
Bentley
Prince Street
|
|
|
37,404
|
|
|
32,228
|
|
|
16.1
|
%
|
Specialty
Products (sold in March 2007)
|
|
|
--
|
|
|
2,806
|
|
|
*
|
|
Corporate
Expenses and Eliminations
|
|
|
2,761
|
|
|
1,218
|
|
|
126.7
|
%
|
Total
|
|
$
|
234,069
|
|
$
|
199,093
|
|
|
17.6
|
%
|
*Not
meaningful
Cost
of Sales and Selling, General and
|
|
Six
Months Ended
|
|
Percentage
|
|
Administrative
Expenses (Combined)
|
|
07/01/07
|
|
07/02/06
|
|
Change
|
|
|
|
(In
thousands)
|
|
|
|
Modular
Carpet
|
|
$
|
372,396
|
|
$
|
308,049
|
|
|
20.9
|
%
|
Bentley
Prince Street
|
|
|
72,518
|
|
|
60,815
|
|
|
19.2
|
%
|
Specialty
Products (sold in March 2007)
|
|
|
2,052
|
|
|
5,914
|
|
|
(65.3
|
%)
|
Corporate
Expenses and Eliminations
|
|
|
4,414
|
|
|
2,363
|
|
|
86.8
|
%
|
Total
|
|
$
|
451,380
|
|
$
|
377,141
|
|
|
19.7
|
%
|
Interest
Expenses
For
the
three-month period ended July 1, 2007, interest expense decreased $1.7 million
to $9.2 million, versus $10.9 million in the comparable period in 2006. For
the
six-month period ended July 1, 2007, interest expense decreased $3.9 million
to
$18.3 million, versus $22.2 million in the comparable period in 2006. These
decreases were due primarily to the lower levels of debt outstanding on a daily
basis during each of the first two quarters of 2007 versus the comparable
periods in 2006. During the full year 2006 and the first six months of 2007,
we
repurchased $46.6 million and $22.4 million, respectively, of our 7.3% senior
notes due 2008.
Liquidity
and Capital Resources
General
At
July
1, 2007, we had $89.3 million in cash, no borrowings and $10.0 million in
letters of credit outstanding under our domestic revolving credit facility,
and
€6.7 million (approximately $8.8 million) in borrowings outstanding under our
European credit facility. As of July 1, 2007, we could have incurred $62.7
million of additional borrowings under our domestic revolving credit facility
and €19.3 million (approximately $25.9 million) under our European credit
facility.
Analysis
of Cash Flows
Our
primary sources of cash during the six-month period ended July 1, 2007, were
(1)
$8.7 million of borrowings on our European credit facility, and (2) $ 2.8
million from the exercise of employee stock options. The primary uses of cash
for the six-month period ended July 1, 2007, were (1) $22.4 million for
repurchases of the Company’s 7.3% senior notes, (2) $17.9 million for purchases
of equipment, primarily for our manufacturing facilities, and (3) $16.1 million
related to an increase in inventory levels.
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
discussion below in this Item 3 is based upon the more detailed discussions
of
our market risk and related matters included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2006, under Item 7A of that Form 10-K.
Our discussion here focuses on the quarter ended July 1, 2007, and any material
changes from (or other important intervening developments since the time of)
the
information discussed in that Form 10-K. This discussion should be read in
conjunction with that Form 10-K for more detailed and background
information.
At
July
1, 2007, we recognized a $6.2 million decrease in our foreign currency
translation adjustment account compared to December 31, 2006, primarily because
of the strengthening of the U.S. dollar against the Euro.
Sensitivity
Analysis.
For
purposes of specific risk analysis, we use sensitivity analysis to measure
the
impact that market risk may have on the fair values of our market sensitive
instruments.
To
perform sensitivity analysis, we assess the risk of loss in fair values
associated with the impact of hypothetical changes in interest rates and foreign
currency exchange rates on market sensitive instruments. The market value of
instruments affected by interest rate and foreign currency exchange rate risk
is
computed based on the present value of future cash flows as impacted by the
changes in the rates attributable to the market risk being measured. The
discount rates used for the present value computations were selected based
on
market interest and foreign currency exchange rates in effect at July 1, 2007.
The values that result from these computations are compared with the market
values of these financial instruments at July 1, 2007. The differences in this
comparison are the hypothetical gains or losses associated with each type of
risk.
As
of
July 1, 2007, based on a hypothetical immediate 150 basis point increase in
interest rates, with all other variables held constant, the market value of
our
fixed rate long-term debt would be impacted by a net decrease of approximately
$13.2 million. Conversely, a 150 basis point decrease in interest rates would
result in a net increase in the market value of our fixed rate long-term debt
of
approximately $10.4 million.
As
of
July 1, 2007, a 10% decrease or increase in the levels of foreign currency
exchange rates against the U.S. dollar, with all other variables held constant,
would result in a decrease in the fair value of our financial instruments of
$8.9 million or an increase in the fair value of our financial instruments
of
$7.3 million, respectively. As the impact of offsetting changes in the fair
market value of our net foreign investments is not included in the sensitivity
model, these results are not indicative of our actual exposure to foreign
currency exchange risk.
ITEM
4.
CONTROLS AND PROCEDURES
As
of the
end of the period covered by this Quarterly Report on Form 10-Q, an evaluation
was performed under the supervision and with the participation of our
management, including our President and Chief Executive Officer and our Senior
Vice President and Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures, as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the “Act”), pursuant to
Rule 13a-14(c) under the Act. Based on that evaluation, our President and Chief
Executive Officer and our Senior Vice President and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
the
end of the period covered by this Quarterly Report.
There
were no changes in our internal control over financial reporting that occurred
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II -
OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
We
are
subject to various legal proceedings in the ordinary course of business, none
of
which is required to be disclosed under this Item 1.
ITEM
1A.
RISK FACTORS
There
are
no material changes in risk factors in the second quarter of 2007. For a
discussion of risk factors, see Part I, Item 1A, “Risk Factors,” in our
Annual Report on Form 10-K for fiscal year 2006.
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The
Company held its annual meeting of shareholders on May 17, 2007.
(b) Not
applicable.
(c) The
matters considered at the annual meeting, and votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, relating
to
each matter are as follows:
(i) Election
of the following Directors:
Class
A
|
|
For
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
Dianne
Dillon-Ridgley
|
|
|
30,192,510
|
|
|
17,405,116
|
|
|
June
M. Henton
|
|
|
28,285,965
|
|
|
19,311,661
|
|
|
Christopher
G. Kennedy
|
|
|
30,162,645
|
|
|
17,434,981
|
|
|
K.
David Kohler
|
|
|
47,271,565
|
|
|
326,061
|
|
|
Thomas
R. Oliver
|
|
|
30,163,413
|
|
|
17,434,213
|
|
|
|
|
|
|
|
|
|
|
|
Class
B
|
|
|
For
|
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
|
|
Ray
C. Anderson
|
|
|
4,871,929
|
|
|
0
|
|
|
Edward
C. Callaway
|
|
|
4,871,929
|
|
|
0
|
|
|
Carl
I. Gable
|
|
|
4,871,929
|
|
|
0
|
|
|
Daniel
T. Hendrix
|
|
|
4,871,929
|
|
|
0
|
|
|
James
B. Miller, Jr.
|
|
|
4,871,929
|
|
|
0
|
|
|
Harold
M. Paisner
|
|
|
4,871,929
|
|
|
0
|
|
|
(ii) Proposal
to ratify the appointment of BDO Seidman, LLP to serve as independent auditors
for 2007:
|
For:
|
|
|
52,410,455
|
|
|
Against:
|
|
|
50,703
|
|
|
Abstain:
|
|
|
8,397
|
|
(d) Not
applicable
ITEM
5.
OTHER INFORMATION
None
ITEM
6.
EXHIBITS
The
following exhibits are filed with this report:
EXHIBIT
NUMBER
|
|
DESCRIPTION
OF EXHIBIT
|
|
|
|
2.1
|
|
Stock
Purchase Agreement, by and among Interface, Inc., InterfaceFABRIC,
Inc.
and Office Fabrics Holding Corp., dated as of June 19, 2007 (without
Exhibits and Schedules) (included as Exhibit 2.1 to the Company’s Current
Report on Form 8-K dated June 19, 2007, previously filed with the
Commission and incorporated herein by reference).
|
31.1
|
|
Section
302 Certification of Chief Executive Officer.
|
31.2
|
|
Section
302 Certification of Chief Financial Officer.
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §
1350.
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §
1350.
|
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:
August 7, 2007
|
By:
|
/s/ Patrick
C.
Lynch
|
|
|
Patrick
C. Lynch
|
|
|
Senior
Vice President
|
|
|
(Principal
Financial Officer)
|
EXHIBIT
INDEX
EXHIBIT
NUMBER
|
|
DESCRIPTION
OF EXHIBIT
|
|
|
|
2.1
|
|
Stock
Purchase Agreement, by and among Interface, Inc., InterfaceFABRIC,
Inc.
and Office Fabrics Holding Corp., dated as of June 19, 2007 (without
Exhibits and Schedules) (included as Exhibit 2.1 to the Company’s Current
Report on Form 8-K dated June 19, 2007, previously filed with the
Commission and incorporated herein by reference).
|
31.1
|
|
Section
302 Certification of Chief Executive Officer.
|
31.2
|
|
Section
302 Certification of Chief Financial Officer.
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §
1350.
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §
1350.
|