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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 28, 1997
Commission File No: 0-12016
INTERFACE, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1451243
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(State of incorporation) (I.R.S. Employer Identification No.)
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (770) 437-6800
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Securities Registered Pursuant to Section 12(b) of the Act: None
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Securities Registered Pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $0.10 PAR VALUE PER SHARE
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(Title of Class)
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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant as of March 12, 1998
(assuming conversion of Class B Common Stock into Class A Common
Stock): $881,000,000 (22,025,960 shares valued at the last sales
price of $40.00 on March 11, 1998). See Item 12.
Number of shares outstanding of each of the registrant's
classes of Common Stock, as of March 12, 1998:
Class Number of Shares
----- ----------------
Class A Common Stock,
$0.10 par value per share ................. 21,477,996
Class B Common Stock,
$0.10 par value per share ................. 2,783,470
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 28, 1997 are incorporated by reference into Parts I and
II.
Portions of the Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Interface, Inc. ("Interface" or the "Company") is a
global manufacturer, marketer, installer and servicer of
products for the commercial and institutional interiors market.
With a 40% market share, the Company is the worldwide leader
in the modular carpet segment, which includes both carpet tile
and two-meter roll goods. The Company's BENTLEY MILLS, PRINCE
STREET and FIRTH brands are leaders in the high quality,
designer-oriented sector of the broadloom segment. The Company
provides carpet installation and maintenance services through
its domestic dealer network, Re:Source Americas, and provides
specialized carpet replacement services through its Renovisions
subsidiary. The Company's Interior Fabrics Group includes the
leading U.S. manufacturer of panel fabrics for use in open plan
office furniture systems, with a market share in excess of 60%.
The Company's specialty products operations produce raised/access
flooring systems, antimicrobial additives, adhesives and various
other chemical compounds and products. These complementary
product offerings, together with an integrated marketing philosophy,
enable Interface to take a "total interior solutions" approach to
serving the diverse needs of its customers around the world.
The Company markets products in over 100 countries around
the world under such established brand names as Interface and
Heuga in modular carpet; BENTLEY MILLS, PRINCE STREET and FIRTH
in broadloom carpets; GUILFORD OF MAINE, STEVENS LINEN, CAMBORNE,
TOLTEC and INTEK in interior fabrics and upholstery products;
INTERSEPT in chemicals; and C-Tec and Intercell in raised/access
flooring systems. The Company utilizes an internal marketing and
sales force of over 1,100 experienced personnel (the largest in
the commercial floorcovering industry), stationed at over 100
locations in over 35 countries, to market the Company's carpet
products and services in person to its customers. The Company's
principal geographic markets are North America (70% of 1997 net
sales), the United Kingdom and Western Europe (23% of 1997 net
sales), and Asia-Pacific (7% of 1997 net sales). The Company is
aggressively developing opportunities in Greater China and
Southeast Asia, South America, and Central and Eastern Europe,
which management believes represent significant growth markets
for the Company.
While the Company's net sales from U.S. operations have
historically been derived primarily from the renovation market,
Interface believes that the recovery in the U.S. commercial
office market, which began in the mid 1990's, will drive growth
in the new construction market over the next several years. From
a high of nearly 24% in 1986, suburban office vacancy rates
dropped to a decade low of 9.7% as of September 1997, according
to CB Commercial/Torto Wheaton Research. In addition, CB
Commercial/Torto Wheaton Research reports that 34 out of 54 major
metropolitan areas were below the 10% vacancy level in September
1997. The Company believes that a 10% vacancy level is a critical
threshold which drives new construction. Given the decade-long
downturn in the office market, the Company believes the recovery
should continue for a number of years. The Company expects that
all of its domestic operations will benefit from these industry
developments. In its international markets, the Company expects
to benefit from both increased use and acceptance of its products
as well as recoveries in the commercial office markets,
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particularly in Europe. The Company also believes that, within
the overall floorcovering market, the demand for modular carpet
is increasing worldwide as more customers recognize its
advantages in terms of greater design options and flexibility,
longer average life, and ease of access to sub-floor wiring.
For 1997, the Company had net sales and net income of $1.135
billion and $37.5 million, respectively, the highest in the
Company's history. Net sales were composed of floorcovering sales
($898.2 million), interior fabrics sales ($184.7 million) and
chemical and specialty product sales ($52.4 million), accounting
for 79%, 16% and 5% of total net sales, respectively. The Company
achieved a compound annual growth rate in its net sales and net
income of 16% and 28%, respectively, over the five-year period
from 1993 to 1997.
RECENT ACQUISITION
On December 30, 1997 (subsequent to the end of fiscal 1997),
the Company completed the acquisition of the European carpet
businesses of Readicut International plc ("Readicut"), for
approximately $50 million, subject to final adjustment. After the
planned divestiture of certain assets of Readicut, including its
Network Flooring dealer division and Joseph, Hamilton & Seaton
Ltd., a contract carpet distributor, the Company's final investment
for the retained Readicut businesses is expected to be less than $15
million. The retained businesses will include Firth Carpets Ltd.,
based in West Yorkshire, England, a leading manufacturer of high
quality woven and tufted carpet primarily for the contract markets;
and a 40% interest in Vebe Floorcoverings BV, located in the
Netherlands, a leading manufacturer of needlepunch carpet. Firth
Carpets is located in close proximity to the Company's Camborne
Holdings Ltd. fabrics facility and its Shelf, England modular carpet
facility, which is expected to allow Interface to realize significant
synergies with these existing operations. In February 1998, the
Company consummated a joint venture arrangement with the
principals of Condor Carpets BV, the Company's commission tufter
in Europe, pursuant to which the principals of Condor Carpets
acquired a 60% interest in Vebe Floorcoverings.
COMPANY STRENGTHS
Management believes that the Company benefits from several
significant competitive advantages, which will assist it in
sustaining and enhancing its position as a market leader. The
Company's principal strengths include:
STRONG BRAND NAMES WITH REPUTATION FOR QUALITY AND
RELIABILITY. The Company's products are known in the
industry for their high quality and reliability. The
Company's strong brand names in carpets, interior fabrics,
and raised/access flooring systems are leaders in the
industry. INTERFACE AND HEUGA are the pre-eminent brand
names in carpet tiles for commercial and institutional use
worldwide. The PRINCE STREET and BENTLEY MILLS brands are
rated the number one and two brands, respectively, for
carpet design in the U.S. according to a 1997 survey of
interior designers published in the Floor Focus industry
publication. Internationally, Firth Carpets has a reputation
in Europe for manufacturing high-quality woven and tufted
products. GUILFORD AND CAMBORNE are leading brand names in
their respective markets for interior fabrics.
3
EFFICIENT AND LOW-COST GLOBAL MANUFACTURING OPERATIONS.
The Company's global manufacturing capabilities are an
important competitive advantage to Interface in serving the
needs of multinational corporate customers who require
uniform products and services at their various locations
around the world. Global manufacturing locations enable the
Company to compete effectively with local producers in its
international markets, while also affording international
customers more favorable delivery times and freight costs.
The Company's capital investment program to consolidate and
modernize the yarn manufacturing operations of its Interior
Fabrics Group has resulted in significant efficiencies and
cost savings, as well as new product capabilities. In
addition, this has allowed Interface to respond to a shift
in demand towards lighter weight, less expensive fabrics by
original equipment manufacturer (OEM) panel fabric customers.
The Company's new, state-of-the-art yarn manufacturing facility
in Guilford, Maine began operating in 1996, and became fully
operational in July 1997.
DEDICATED DISTRIBUTION AND SERVICE CAPABILITY THROUGH
RE: SOURCE AMERICAS. The Company's dealer network, Re:Source
Americas, now consists of 18 owned and 75 affiliated
dealers. The Company believes that the service, and
marketing and distribution capabilities added by Re:Source
Americas have resulted in (i) increased sales of Company
products as dealers in the network have begun to supply
Company products on a preferred basis, (ii) enhanced
customer satisfaction by assisting customers in the process
of selecting, purchasing, installing, maintaining and
recycling carpet products, (iii) improved pricing for the
Company's floorcovering products and (iv) increased
operating margins by consolidating administrative functions
and coordinating and streamlining sales efforts by Company
and dealer sales personnel.
STRONG CUSTOMER AND ARCHITECTURAL AND DESIGN COMMUNITY
RELATIONSHIPS. The Company focuses its sales efforts at the
design phase of commercial projects. Interface personnel
cultivate relationships both with the owners and users of
the facilities involved in the projects and with specifiers
such as architects, engineers, interior designers and
contracting firms who are directly involved in specifying
products and often make or significantly influence purchase
decisions. The Company emphasizes its product design and
styling capabilities and its ability to provide creative,
high-value solutions to its customers' needs. Interface
marketing and sales personnel also serve as a primary
technical resource for the Company's customers, both with
respect to product maintenance and service as well as design
matters.
AWARD-WINNING AND INNOVATIVE PRODUCT DESIGN AND
DEVELOPMENT CAPABILITIES. The Company's product design and
development capabilities give Interface a significant
competitive advantage. Interface has an exclusive consulting
contract with the leading design firm Oakey Designs to
augment the Company's internal research, development and
design staff. Since engaging Oakey Designs in 1994, the
Company has introduced more than 130 new carpet designs in
the U.S. and has enjoyed considerable success in winning
U.S. carpet industry design awards bestowed by the
International Interior Design Association (IIDA),
4
particularly in the carpet tile division. In 1996, Oakey
Designs' services were extended to the Company's international
carpet operations, and an affiliate of that firm was engaged
to provide similar design services to the Company's interior
fabrics business.
SEASONED MANAGEMENT TEAM AND COMMITTED EMPLOYEES. An
important component of the Company's recent success has been
the continued strengthening of its management team and its
commitment to developing and maintaining an enthusiastic and
collaborative work force. In 1993, Ray C. Anderson, the
Company's Chairman and Chief Executive Officer, hired
industry veteran Charles R. Eitel to manage the Company's
domestic carpet tile operations. Mr. Eitel became President
and Chief Operating Officer of the Company in February 1997.
Mr. Anderson and Mr. Eitel have put in place a team of
seasoned executives to manage the Company's continued growth
and diversification. In addition, over the past three years,
the Company has made a substantial investment in its
approximately 7,300 employees worldwide. In 1997, for
example, the Company created an internal employee training
and education team, known as One World Learning, which
implements corporate-wide learning programs. In December
1997, Fortune Magazine rated Interface one of the top 100
employers in the U.S. on the strength of the Company's
commitment to its employees.
BUSINESS STRATEGY AND PRINCIPAL INITIATIVES
Interface's long-standing corporate strategy has been to
diversify and integrate worldwide. The Company seeks to diversify
by developing internally or acquiring related product lines and
businesses in the commercial interiors field; and to integrate by
identifying and developing synergies and operating efficiencies
among the Company's products and global businesses. In continuing
that strategy, the Company is pursuing the following principal
strategic initiatives:
GLOBALIZATION OF THE "MASS CUSTOMIZATION" PRODUCTION
STRATEGY. The Company is implementing aspects of its
successful U.S. mass customization production initiative at
its floorcovering operations in Europe and Asia-Pacific and
at its interior fabrics operations. Through mass
customization the Company is able to respond to customers'
requirements for custom or highly styled products by quickly
and efficiently producing both custom samples and the
ultimate products, and to more readily determine proven
"winners" that can be manufactured for inventory for broader
distribution. Mass customization was introduced to the
Company's U.S. carpet tile business in 1994, and its
principal components include (i) developing a simplified but
versatile yarn utilization system, (ii) investing in highly
efficient, state-of-the-art tufting and custom sampling
equipment, and (iii) utilizing innovative design and styling
to create products. This strategy has resulted in
substantial operating improvements in the U.S. carpet tile
business, including increased margins and reduced inventory
levels of both raw materials and standard products.
"TOTAL INTERIOR SOLUTIONS". The Company's objective is
to use the diverse but complementary nature of its product
lines to offer "total interior solutions" to its customers
worldwide, meeting their diverse needs for products and
5
services. The Company combines its global marketing and
manufacturing capabilities to successfully target
multinational companies and compete effectively in local
markets worldwide. The Company has organized a 45-person
global account team with responsibility for the Company's
largest multinational customers and prospects, and is
implementing a marketing communications network to link its
worldwide marketing and sales force. The Company has also
consolidated management responsibility for certain key
operational areas, which has significantly increased global
cooperation and coordination in product planning, production
and marketing activities--in effect, "hooking it up"
worldwide. In addition, the new Re:Source Americas network
provides a channel for delivery of a variety of services and
products offered by the Company in addition to commercial
carpet, including carpet replacement and reclamation
services, furniture moving and installation, adhesives and
cleaning chemicals, specialty products, and raised/access
flooring systems.
ECOLOGICAL SUSTAINABILITY THROUGH WAR-ON-WASTE AND
ECOSENSE PROGRAMS. In January 1995, the Company began a
worldwide war-on-waste initiative referred to internally as
"QUEST". Applying a zero-based definition of waste (broadly
defined as any measurable cost that goes into manufacturing
a product but does not result in identifiable value to the
customer), the Company realized an aggregate of
approximately $50 million in savings through eliminating
such waste from 1995 to 1997. Management has identified an
additional $80 million of waste and believes the Company can
eliminate half of such waste by the end of 2001. The
war-on-waste represents a first step in the Company's
broader EcoSense initiative, which is the Company's
long-range program to achieve greater resource efficiency
and, ultimately, ecological "sustainability"--that is, the
point at which Interface is no longer a net "taker" from the
earth. The Company believes that its pursuit of these
initiatives provides a competitive advantage in marketing
its products to an increasing number of customers.
SELECTIVE STRATEGIC ACQUISITIONS. The Company has
successfully expanded its business and product lines through
strategic acquisitions. The Company expanded its carpet
operations with the acquisitions of Heuga Holdings B.V. (now
Interface Europe B.V.) in 1988, Bentley Mills, Inc. in 1993, Prince
Street Technologies, Ltd. in 1994 and Firth Carpets in 1998, while
its fabrics business has been expanded significantly with the acquisitions
of certain assets of Stevens Linen Associates, Inc. in 1993, Toltec
Fabrics, Inc. and the Intek division of Springs Industries, Inc.
in 1995 and Camborne in 1997. In addition, the Company's acquisitions
of Renovisions, Inc. in 1996 and Facilities Resource Group, Inc. in 1997,
and the formation of the Re:Source Americas dealer network through
acquisitions primarily in 1996 and 1997, have enabled the Company
to expand rapidly into a variety of commercial interior
services. The Company intends to continue to selectively
target companies and product lines that complement existing
product lines and further the Company's ability to provide
total interior solutions for its customers. The Company
believes that its cash flow from operations will enable it to
continue to capitalize on attractive strategic acquisition
opportunities.
6
MODULAR AND BROADLOOM CARPET
PRODUCTS
The Company is the world's largest manufacturer and marketer
of modular carpet, which includes carpet tile and two-meter roll
goods, with a 40% worldwide market share. Broadloom carpet
generally consists of tufted carpet sold primarily in twelve-foot
rolls. The Company's broadloom carpet operations--Bentley Mills,
Prince Street and Firth Carpets--focus on the high quality,
designer-oriented sector of the U.S. and U.K. broadloom carpet
markets. Through a joint venture arrangement with the principals
of Condor Carpets, the Company also has a 40% interest in Vebe
Floorcoverings, which management believes is the low-cost
European manufacturer of needlepunch carpet.
MODULAR CARPET. Marketed under the leading global brands
INTERFACE and HEUGA, the Company's free-lay modular carpet system
utilizes carpet tiles cut in precise, dimensionally stable
squares (usually 50 square centimeters) to produce a
floorcovering which combines the appearance and texture of
broadloom carpet with the advantages of a modular carpet system.
The growing use of open plan interiors and modern office
arrangements utilizing demountable, movable partitions and
modular furniture systems has encouraged the use of carpet tile,
as compared to other soft surface flooring products. The
Company's GLASBAC(R) echnology employs a unique,
fiberglass-reinforced polymeric composite backing that allows the
tile to be installed and remain flat on the floor without the
need for general application of adhesives or use of fasteners.
This type of carpet tile thus may be easily removed and replaced,
permitting rearrangement of office partitions and modular
furniture systems without the inconvenience and expense
associated with removing, replacing or repairing other soft
surface flooring products, including broadloom carpeting. Carpet
tile facilitates access to sub-floor telephone, electrical,
computer and other wiring by lessening disruption of operations,
and also eliminates the cumulative damage and unsightly
appearance commonly associated with frequent cutting of
conventional carpet as utility connections and disconnections are
made. Because a relatively small portion of a carpet installation
often receives the bulk of traffic and wear, the ability to
rotate carpet tiles between high traffic and low traffic areas
and to selectively replace worn tiles can significantly increase
the average life and cost efficiency of the floorcovering.
The Company uses a number of conventional and
technologically advanced methods of carpet construction to
produce carpet tiles in a wide variety of colors, patterns,
textures, pile heights and densities designed to meet both the
practical and aesthetic needs of a broad spectrum of commercial
interiors--particularly offices, health care facilities,
airports, educational and other institutions, and retail
facilities. The Company's carpet tile systems permit distinctive
styling and patterning that can be used to complement interior
designs, to set off areas for particular purposes and to convey
graphic information. While the Company continues to manufacture
and sell the major portion of its carpet tile in standard styles,
an increasing volume of the Company's modular carpet sales are
custom or made-to-order products designed to meet particular
customer specifications.
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The Company produces and sells carpet tile specially adapted
for the health care facilities market. The Company's carpet tile
possesses characteristics--such as the use of the INTERSEPT(R)
antimicrobial, static-controlling nylon yarns, and thermally
pigmented, colorfast yarns--making it suitable for use in such
facilities in lieu of hard surface flooring.
The Company also manufactures and sells two-meter roll goods
which are structure-backed and offer many of the advantages of
both carpet tiles and broadloom carpet. They are often used in
conjunction with carpet tiles to create special design effects.
The Company's current principal customers for such products are
in the education, health care and government sectors. The Company
believes, however, that the demand for two-meter roll goods is
increasing generally within the commercial and institutional
interiors market, and expects two-meter roll goods to account for
a growing percentage of its U.S. modular carpet sales in the
future.
BROADLOOM CARPET. The Company has obtained a significant
share of the high-end, designer-oriented broadloom carpet segment
by combining innovative product design and styling capabilities
and short production and delivery times with a marketing strategy
geared toward serving and working closely with interior
designers, architects and other specifiers. Prince Street's
design-sensitive broadloom products center around unique,
multi-dimensional textured carpets with a hand-tufted look, while
Bentley Mills' designs emphasize the dramatic use of color. The
PRINCE STREET and BENTLEY MILLS brands were rated the number one
and two brands, respectively, for carpet design in the U.S.
according to a 1997 survey of interior designers published in the
FLOOR FOCUS industry publication. In addition, Firth Carpets has
a reputation for manufacturing high-quality woven and tufted
products, mostly using woolen spun blends. Vebe Floorcoverings,
one of the largest needlepunch carpet producers in Europe, focuses
its business on volume sales to large distributors of carpet
products.
SERVICES
The Company provides commercial carpet installation and
maintenance services through the Re:Source Americas network. The
Re:Source Americas network presently comprises approximately 93
owned or affiliated commercial floorcovering dealers strategically
located throughout the major metropolitan areas of the United
States. The new network: (i) allows the Company to influence and
monitor customer satisfaction throughout the product ownership cycle,
from specification through reclamation; (ii) reduces the Company's cost
of selling by bolstering efforts of sales representatives at the mill
level with dealer-level support; (iii) improves pricing for products;
and (iv) achieves efficiencies by augmenting administrative functions
of dealers. The Re:Source Americas network also provides a channel for
delivery of a variety of services and products offered by the Company
in addition to commercial carpet, including carpet replacement services
offered by Renovisions, Inc., adhesives and cleaning chemicals manufactured
by Rockland React-Rite, Inc., specialty products manufactured by Pandel, Inc.,
raised/access flooring systems produced by Interface Architectural
Resources, Inc., furniture installation by Facilities Resource Group,
and carpet maintenance through the Company's IMAGE(R) maintenance system.
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Renovisions, acquired by the Company in February 1996, is a
nationwide installation services firm that has pioneered a new
method of carpet replacement. The RENOVISIONS(R) process utilizes
patented lifting equipment and specialty tools to lift office
equipment and modular workstations in place, permitting the
economical replacement of existing carpet with virtually no
disruption of the customer's business. Other proprietary products
facilitate the movement of file cabinets, office furniture, and
even complete workstations without the inefficiency and
disruption associated with unloading and dismantling the items
being moved. Facilities Resource Group, acquired by the Company
in July 1997, is a Chicago, Illinois-based provider of furniture
installation and related services. The Company intends to replicate
Facilities Resource Group's business in various other markets
throughout the United States.
In the U.S., the Company also provides carpet maintenance
services through its IMAGE maintenance system. The IMAGE system
includes a custom-engineered maintenance methodology and a line
of cleaning chemicals manufactured by Rockland React-Rite. In
Europe, the Company has recently re-launched the European version
of the IMAGE program, pursuant to which the Company has licensed
selected independent service contractors to provide carpet
maintenance services.
MARKETING AND SALES
The Company traditionally has focused its carpet marketing
strategy on major accounts, seeking to build lasting
relationships with national and multinational end-users, and on
specifiers, such as architects, engineers, interior designers, and
contracting firms who often make or significantly influence the
purchase decision. The acquisitions of Bentley Mills and Prince
Street significantly strengthened the Company's relationships
with interior designers and architects and has enhanced the
Company's ability to target those and other specifiers at the
critical design stage of commercial projects. The Company
emphasizes sales to the commercial office sector, both new
construction and renovation, as well as to health care
facilities, governmental institutions and public facilities,
including libraries, museums, convention and hospitality centers,
airports, schools and hotels. The Company's marketing efforts are
enhanced by the well-known brand names of its carpet products,
including INTERFACE and HEUGA in modular carpet, and BENTLEY
MILLS, PRINCE STREET and FIRTH in broadloom carpet.
An important part of the Company's marketing and sales
efforts involves the preparation of custom made samples of
requested carpet designs, in conjunction with the development of
innovative product designs and styles that meet the customer's
particular needs. (See "Business Strategy and Principal
Initiatives", above, and "Product Design, Research and
Development", below.) The Company's mass customization
initiative, implemented for its U.S. modular carpet operations in
1994, included the simplification of the Company's carpet
manufacturing operations and the purchase of five custom sample
production machines, which significantly improved its ability to
respond quickly and efficiently to requests for samples. The
turnaround time for the Company to produce made-to-order carpet
samples to customer specifications has been reduced from an
average of 30 days in 1993 to 3 days in 1997, and the average
number of carpet samples produced per month has increased from 90
per month in 1993 to over 1,400 per month in 1997. This ability
9
has significantly enhanced the Company's marketing and sales
efforts, and has increased the Company's volume of higher margin
custom or made-to-order sales.
The Company primarily uses its internal marketing and sales
force of over 1,100 persons to market its carpet products, and it
also relies on Re:Source Americas network dealers to bolster its
sales efforts. The Company maintains a Creative Services staff
that works directly with clients on major design projects. The
efforts of these personnel in helping with product selection,
customer specifications and unique approaches to design and
styling issues are an important component of the marketing aspect
of the Company's mass customization approach. In order to
implement its global marketing efforts, the Company has product
and design studios in the United States, England, France,
Germany, Spain, Norway, the Netherlands, Australia, Japan and
Singapore. The Company expects to continue to open such offices
in other locations around the world as necessary to capitalize on
emerging marketing opportunities.
As part of its full service approach to marketing, the
Company maintains a field services staff to provide on-site
customer service for both in-progress and completed
installations. In the U.S., the Re:Source Americas network
significantly enhances the Company's ability to provide customer
service and derive marketing benefits.
MANUFACTURING
The Company manufactures carpet in the United States, the
Netherlands, the United Kingdom, Canada, Australia and Southeast
Asia. In addition to enhancing the Company's ability to develop a
strong local presence in foreign markets, having foreign
manufacturing operations enables the Company to supply its
customers with carpet from the location offering the most
advantageous terms for delivery times, exchange rates, duties and
tariffs and freight expense. The Company believes that the
ability to offer consistent products and services on a worldwide
basis at attractive prices is an important competitive advantage
in servicing multinational customers seeking global supply
relationships. Consistent with this strategy, the Company in 1996
entered into a joint venture (owned 70% by the Company) with BASF
Corporation and Shanghai China Textile International Science &
Technological Industrial City Development Company, a Chinese
government-sponsored company, to build a carpet tile
manufacturing facility in China, which is expected to be
operational in April 1998. The Company will consider additional
locations for manufacturing operations in other parts of the
world as necessary to meet the demands of customers in growing
international markets.
The Company currently obtains a significant percentage of
its requirements for synthetic fiber (the principal raw material
used in the Company's carpet products) from DuPont. The Company
believes that its arrangements with DuPont permit the Company to
obtain favorable terms. However, the Company currently purchases
fiber from other long-term suppliers, and there are adequate
alternative sources of supply from which the Company could
fulfill its synthetic fiber requirements if its arrangements with
DuPont should change. Other raw materials used by the Company are
also readily available from a number of sources.
10
In 1995 and 1996, the Company implemented a manufacturing
plan in which it standardized its worldwide manufacturing
procedures. In connection with the implementation of this plan,
the Company adopted global standards for its tufting equipment,
yarn systems and product styling, and changed its standard carpet
tile size from 18 square inches to 50 square centimeters. The
Company believes that changing its standard carpet tile size has
allowed it to reduce operational waste and fossil fuel energy
consumption, in addition to offering consistent product sizing
for its global customers.
The Company's significant international operations are
subject to various political, economic and other uncertainties,
including risks of restrictive taxation policies, foreign
exchange restrictions, changing political conditions and
governmental regulations. The Company also receives a substantial
portion of its revenues in currencies other than U.S. dollars,
which makes it subject to the risks inherent in currency
translations. Although the Company's ability to manufacture and
ship products from facilities in several foreign countries
reduces the risks of foreign currency fluctuations it might
otherwise experience, and the Company also engages from time to
time in hedging programs intended to reduce further those risks,
the scope and volume of the Company's global operations make it
impossible to eliminate completely all foreign currency
translation risks as a factor for the Company's financial
results.
COMPETITION
The commercial floorcovering industry is highly competitive.
The Company competes, on a global basis, in the sale of its
modular and broadloom carpet with other carpet manufacturers and
manufacturers of vinyl and other types of floorcoverings.
Although the industry recently has experienced significant
consolidation, a large number of manufacturers remain in the
industry. Management believes that the Company is the largest
manufacturer of modular carpet in the world, possessing a global
market share that is more than two times that of its nearest
competitor. However, a number of domestic and foreign competitors
manufacture modular carpet as one segment of their business, and
certain of these competitors have financial resources in excess
of the Company's.
The Company believes the principal competitive factors in
its primary floorcovering markets are quality, design, service,
broad product lines, product life, marketing strategy, and
pricing. In the commercial office market, modular carpet competes
with various floorcoverings, of which broadloom carpet is the
most common. In the health care facilities market, the Company's
products compete primarily with resilient tile. The Company
believes that treatment of its modular carpet with the INTERSEPT
antimicrobial chemical agent is a material factor in its ability
to compete successfully in the health care market. The quality,
service, design, longer average life, flexibility (design
options, selective rotation or replacement, use in combination
with roll goods) and convenience of the Company's modular carpet
are its principal competitive advantages, which are offset in
part by its higher initial cost for comparable grades of
broadloom carpet. The acquisitions of Bentley Mills, Prince
Street and Firth Carpets, with their broadloom carpet product
lines, have enhanced the Company's competitive position by
11
enabling the Company to offer one-stop shopping to commercial
carpet customers, and thus, to capture some sales that would have
gone to competitors. In addition, the Company believes that its
global manufacturing capabilities are an important competitive
advantage in serving the needs of multinational corporate
customers. Finally, the Company believes that the formation of
the Re:Source Americas network, and the resulting improvement in
customer service, has further enhanced the Company's competitive
position.
INTERIOR FABRICS
PRODUCTS
The Company, through its Interior Fabrics Group, designs,
manufactures and markets specialty fabrics for open plan office
furniture systems and commercial interiors. Sales of panel
fabrics to OEMs of movable office furniture systems constitute
approximately 50% of total U.S. fabrics sales in fiscal 1997.
In addition, the Company produces woven and knitted seating fabrics,
wall covering fabrics, fabrics used for vertical blinds in office
interiors, and fabrics used for cubicle curtains in health care
facilities.
Open plan office furniture systems are typically
panel-enclosed work stations customized to particular work
environments. The open plan concept offers a number of advantages
over conventional office designs, including more efficient floor
space utilization, reduced energy consumption and greater
flexibility to redesign existing space. Since carpet and fabrics
are used in the same types of commercial interiors, the Company's
carpet and interior fabrics operations are able to coordinate the
color, design and marketing of both product lines to their
respective customers as part of the Company's "total interior
solutions" approach.
The Company, in recent years, has diversified and expanded
significantly both its product offerings and markets for interior
fabrics. The Company's 1993 acquisition of the STEVENS LINEN(TM)
lines added decorative, upscale upholstery fabrics and specialty
textile products to the Interior Fabrics Group's traditional
product offerings. The Company's June 1995 acquisition of Toltec
Fabrics, a manufacturer and marketer of fabric for the contract
and home furnishings upholstery markets, enhanced the Company's
presence in the contract jobber market; and its December 1995
acquisition of the Intek division of Springs Industries, a
manufacturer experienced in the production of lighter-weight
panel fabrics, has strengthened the Interior Fabrics Group's
capabilities in that market. In addition, the June 1997
acquisition of Camborne Holdings Ltd., the United Kingdom's
leading textile manufacturer for the office and contract
furnishings markets, has enhanced the Company's access to the
European and Asia-Pacific markets. The Camborne acquisition also
added wool upholstery fabrics specifically designed for the
European market to the Interior Fabrics Group's product offering.
All of these developments have reinforced the Interior Fabrics
Group's dominant position with OEMs of movable office furniture
systems.
The Company manufactures fabrics made of 100% polyester, as
well as wool-polyester blends and numerous other natural and
12
man-made blends, which are either woven or knitted. Its products
feature a high degree of color consistency, natural dimensional
stability and fire retardancy, in addition to their overall
aesthetic appeal. All of the Company's product lines are color
and texture coordinated. The Company seeks continuously to
enhance product performance and attractiveness through
experimentation with different fibers, dyes, chemicals and
manufacturing processes. Product innovation in the interior
fabrics market (similar to the floorcoverings market) is
important to achieving and maintaining market share. (See
"Business Strategy and Principal Initiatives", above, and
"Product Design, Research and Development", below.)
In 1997, the Company introduced its TERRATEX(TM) line of panel
fabrics. The TERRATEX label is intended to denote fabrics
manufactured from 100% recycled polyester, and will include both
new products and traditional product offerings. The first fabric
to bear the TERRATEX label is Guilford of Maine's FR701(R) Line. The
Company intends for all of the Interior Fabrics Group's companies
to manufacture and market products using the TERRATEX label.
The Company anticipates that future growth opportunities
will arise from the growing market for retrofitting services,
where fabrics are used to re-cover existing panels. In addition,
the increased importance being placed on the aesthetic design of
office space should lead to a significant increase in upholstery
fabric sales. Management also believes that significant growth
opportunities exist in international sales, in domestic health
care markets, in contract wallcoverings, and in the provision of
ancillary textile processing services such as the lamination of
fabrics onto substrates for pre-formed panels.
MARKETING AND SALES
The Company's principal interior fabrics customers are OEMs
of movable office furniture systems. The Interior Fabrics Group
sells to essentially all of the major office furniture
manufacturers. The Interior Fabrics Group also sells to
manufacturers and distributors of wallcoverings, vertical blinds,
cubicle curtains, acoustical wallboards, ceiling tiles and
residential furniture, and, since the acquisition of Toltec
Fabrics, to contract jobbers. The GUILFORD OF MAINE, STEVENS
LINEN, TOLTEC, INTEK and CAMBORNE brand names are well-known in
the industry and enhance the Company's fabric marketing efforts.
The majority of the Company's sales are made through the
Interior Fabrics Group's own sales force. The sales team works
closely with designers, architects, facility planners and other
specifiers who influence the purchasing decisions of buyers in
the interior fabrics segment. In addition to facilitating sales,
the resulting relationships also provide the Company with
marketing and design ideas that are incorporated into the
development of new product offerings. The Interior Fabrics Group
maintains a design studio in Dudley, Massachusetts which
facilitates coordination between its in-house designers and the
design staffs of major customers. The Interior Fabrics Group's
design capabilities have also benefited from the product design
services provided to it by an affiliate of Oakey Designs. (See
"Business Strategy and Principal Initiatives", above, and
"Product Design, Research and Development", below.)
13
The Company's fabric sales offices are located in Saddle Brook,
New Jersey, Grand Rapids, Michigan and the United Kingdom. The
Interior Fabrics Group also has marketing and distribution
facilities in Canada and Hong Kong, and sales representatives in
Japan, Hong Kong, Singapore, Korea and South Africa. The Company
has sought increasingly, over the past several years, to expand
its export business and international operations in the fabrics
segment, both to accommodate the demand of principal OEM
customers that are expanding their businesses overseas, and to
facilitate additional coordinated marketing to multinational
customers of the Company's carpet business as part of the
Company's "total interior solutions" approach.
MANUFACTURING
The Company's fabrics manufacturing facilities are located
in Maine, Massachusetts, Michigan, North Carolina and West
Yorkshire, England. The production of synthetic and wool blended
fabrics is relatively complex and requires many steps. Raw fiber
is placed in pressurized vats, and dyes are then forced into the
fiber. Particular attention is devoted to the dyeing process,
which requires a high degree of expertise in order to achieve
color consistency. Following dyeing, the fiber is blended and
proceeds through multiple steps, including carding, spinning,
cone winding, twisting, dressing, weaving and finishing. All raw
materials used by the Company are readily available from a number
of sources. The Interior Fabrics Group has recently begun using
100% recycled fiber manufactured from PET soda bottles in its
manufacturing process.
In response to a shift in the Interior Fabrics Group's
traditional panel fabric market toward lighter weight, less
expensive products, the Company implemented a major capital
investment program in 1994 which included the construction of a
new facility and the acquisition of equipment to enhance the
efficiency and breadth of the Interior Fabrics Group's yarn
manufacturing processes. The program is designed to improve the
Interior Fabrics Group's cost effectiveness in producing such
lighter weight fabrics, reduce manufacturing cycle time, and
enable the Interior Fabrics Group to reinforce its product
leadership position with its OEM customers. The Interior Fabrics
Group already has begun to achieve cost savings as a result of
this program. The acquisition of Intek in December 1995 provided
the Company with immediate and significant capabilities in the
efficient production of lighter weight, less expensive panel
fabrics and the acquisition of Camborne provided a European-based
manufacturing facility and much needed expertise in the
production of wool fabrics. The Company believes that it has
recently been successful in designing fabrics that have
simplified the manufacturing process, thereby reducing complexity
while improving efficiency and quality. Through the use of
existing raw materials, new fabrics are being manufactured using
the mass customization production strategy. By employing the capabilities
that are now available with the Company's new manufacturing facility,
the Company anticipates that its ability to apply the mass customization
production strategy to the manufacture of fabrics will be expanded.
See "Business Strategy and Principal Initiatives", above.
14
The Company offers textile processing services through the
Interior Fabrics Group's Component Technologies division in Grand
Rapids, Michigan. Such services include the lamination of fabrics
onto substrates for pre-formed office furniture system panels,
facilitating easier and more cost effective assembly of the
system components by the Interior Fabrics Group's OEM customers.
COMPETITION
The Company competes in the interior fabrics market on the
basis of product design, quality, reliability, price and service.
By electing to concentrate on the open plan office furniture
systems segment, the Interior Fabrics Group has been able to
specialize its manufacturing capabilities, product offerings and
service functions, resulting in a leading market position.
Through Interface Interior Fabrics, Inc. (formerly Guilford of
Maine, Inc.), Toltec, Camborne and Intek, the Company is the
largest U.S. manufacturer of panel fabric for use in open
plan office furniture systems.
Drawing upon its dominant position in the panel fabric
segment and through its strategic acquisitions, the Company has
been successfully diversifying its product offerings for the
commercial interiors market to include a variety of non-panel
fabrics, including upholstery, cubicle curtains, wallcoverings,
ceiling fabrics and window treatments. The competition in these
segments of the market is highly fragmented and includes both
large, diversified textile companies, several of which have
greater financial resources than the Company, as well as smaller,
non-integrated specialty manufacturers. However, the Company's
capabilities and strong brand names in these segments should
enable it to continue to compete successfully.
SPECIALTY PRODUCTS
The Interface Specialty Products Group is composed of:
Rockland React-Rite, which develops, manufactures and markets
specialty chemical products and which includes the Company's
INTERSEPT antimicrobial sales and licensing program; Pandel,
which produces vinyl carpet tile backing and specialty mat and
foam products; and Interface Architectural Resources, which produces
and markets raised/access flooring systems.
One of the Company's leading chemical products, in terms of
applicability for the commercial and institutional interiors
market, is its proprietary antimicrobial chemical compound, sold
under the registered trademark INTERSEPT. The Company uses
Intersept in many of its carpet products and has licensed
Intersept to other companies for use in a number of products that
are noncompetitive with the Company's products, such as paint,
vinyl wallcoverings, ceiling tiles and air filters.
The Company also manufactures a line of adhesives for carpet
installation, as well as a line of carpet cleaning and
maintenance chemicals, which it markets as part of its IMAGE
maintenance system. In addition, the Company produces and markets
PROTEKT(2)(TM), a proprietary soil and stain retardant treatment;
water-proof sheathing for the fiber optic cable industry and
other applications; accelerators, used to speed the curing
process for rubber used in tires, hoses and other products; and
FATIGUE FIGHTER(R), an impact-absorbing modular flooring system
typically used where people stand for extended periods.
15
The Company manufactures cable management raised/access
flooring systems, a specialty product which it markets through
Interface Architectural Resources. The initial product offering,
marketed under the name INTERCELL(R), is a low-profile (total
height of less than three inches) cable management flooring
system, particularly well suited for use in the renovation of
existing buildings. In 1995, the Company acquired the rights to
the INTERSTITIAL SYSTEMS(TM) access flooring product, a patented,
multiple plenum system that serves to separate pressurized,
climate-controlled air flow from the electrical and
telecommunications cables included within the same access
flooring system. In February 1996, the Company acquired C-Tec,
Inc., the second largest manufacturer of raised/access flooring
systems in the United States. Interface Architectural Resources
markets the successful C-TEC line of products (TEC-COR and
TEC-CRETE), which combine the tensile strength of steel and the
compressive strength of concrete to create a durable, uniform and
sound-absorbent panel which comes in a variety of surfaces.
In September 1997, Interface Architectural Resources and
Herman Miller, Inc. announced their intent to form a joint
venture company to produce integrated work environment solutions
for commercial environments. Herman Miller is a globally
recognized leader in the design and manufacture of innovative
office furniture systems for a wide range of commercial and
health care environments. The Company believes that the joint
venture, which is subject to the negotiation and execution of a
definitive agreement, will effectively combine Herman Miller's
expertise in flexible office furniture systems with the Company's
command of architectural flooring products. Interface
Architectural Resources and Herman Miller have begun to develop
the joint venture's initial product concept.
INTERFACE RESEARCH CORPORATION
Interface Research Corporation provides technical support
and research and development for the entire family of Interface
companies. Recent developments by Interface Research include a new
polycarbite polymer carpet tile backing, which has demonstrated
excellent performance in field tests conducted to date. The new
backing material has also proved to be useful as an improved and
lower cost precoat for broadloom applications. Interface Research
Corporation also provides significant support to the Company's
ECOSENSE initiative, primarily through its efforts in identifying
recyclable products and raw materials and procedures to achieve,
ultimately, closed-loop recycling of the Company's carpet
products. A major technical effort has been launched to define
optimum recycling processes for the Company's carpet and fabric
products. See "Environmental Initiatives".
PRODUCT DESIGN, RESEARCH AND DEVELOPMENT
The Company maintains an active research, development and
design staff of approximately 100 persons, and also draws on the
research and development efforts of its suppliers, particularly
in the areas of fibers, yarns and modular carpet backing
materials.
Innovation and increased customization in product design and
styling are the principal focus of the Company's product
development efforts. The Company's carpet design and development
team is recognized as the industry leader in carpet design and
16
product engineering for the commercial and institutional markets.
Under the leadership of David Oakey since January 1994 (pursuant
to the Company's exclusive consulting contract with Oakey
Designs), the Company has introduced over 130 new carpet designs
during the last four years and has enjoyed considerable success
in winning U.S. carpet industry awards bestowed by the IIDA. In
addition, PRINCE STREET and BENTLEY MILLS were rated the number
one and two brands, respectively, for carpet design in the U.S.,
according to a 1997 survey by the FLOOR FOCUS industry
publication.
Mr. Oakey was also instrumental in the Company's
implementation of a new product development concept--"simple
inputs, pretty outputs"--resulting in the ability to efficiently
produce many products from a single yarn system. The Company's
mass customization production approach evolved, in major part,
from this concept. In addition to increasing the number and
variety of product designs (which enables the Company to increase
high margin custom sales), the mass customization approach
increases inventory turns and reduces inventory levels (for both
raw materials and standard products) and its related costs
because of the Company's more rapid and flexible production
capabilities.
Oakey Designs' services have been extended to the Company's
international carpet tile operations and its domestic and international
broadloom companies. An affiliate of Oakey Designs has been engaged
to provide similar design services to the Company's interior fabrics
business. The Company expects increased levels of innovation in
product design and development for those divisions to be achieved
in the future.
ENVIRONMENTAL INITIATIVES
An important initiative of the Company over the past several
years has been the development of the Envirosense Consortium, an
organization of companies concerned with addressing workplace
environmental issues, particularly poor indoor air quality. The
Consortium now totals 14 member organizations, including interior
products manufacturers (a number of which are licensees of the
Company's Intersept antimicrobial agent), professional service
organizations and design professionals.
In the latter part of 1994, the Company commenced a new
industrial ecology initiative called ECOSENSE, inspired in major
part by the interest of important customers concerned about the
environmental implications of how they and their suppliers do
business. ECOSENSE is directed towards the elimination of energy
and raw materials waste in the Company's businesses, and, on a
broader and more long-term scale, the practical reclamation--and
ultimate restoration--of shared environmental resources. The
initiative involves a commitment by the Company (i) to learn to
meet its raw material and energy needs through recycling of
carpet and other petrochemical products and harnessing benign
energy sources, and (ii) to pursue the creation of new processes
to help sustain the earth's non-renewable natural resources. The
ECOSENSE initiative includes the Company's war-on-waste, pursuant
to which the Company realized an aggregate of $50 million in
savings from 1995 to 1997. See "Business Strategy and Principal
Initiatives--Ecological Sustainability through War-on-Waste and
EcoSense Programs".
17
The Company has engaged some of the world's leading
authorities on global ecology as environmental consultants. The
current list of consultants includes: Paul Hawken, author of THE
ECOLOGY OF COMMERCE, THE NEXT ECONOMY, and Chairman of The
Natural Step, U.S.A.; Bill McDonough, Dean of Architecture,
University of Virginia; Amory Lovins, energy consultant, director
of Rocky Mountain Institute; Daniel Quinn, author of ISHMAEL,
PROVIDENCE, and THE STORY OF B; John Picard, President of E2,
American environmental consultant; David Brower, former executive
director of the Sierra Club, and founder of The Earth Island
Institute; Jonathan Porritt, director of Forum for the Future;
Bernadette Cozart, founder of the Greening of Harlem Coalition;
and Bill Browning, the director of the Rocky Mountain Institute's
Green Development Services.
The Company believes that its environmental initiatives are
valued by its employees and an increasing number of its important
customers and provide a competitive advantage in marketing
products to such customers. The Company also believes that the
resulting long-term resource efficiency (reduction of wasted
environmental resources) will ultimately produce cost savings to
the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and
local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials
into the environment. Management believes that the Company is in
substantial compliance with all applicable federal, state and
local provisions relating to the protection of the environment.
The costs of complying with environmental protection laws and
regulations have not had a material adverse impact on the
Company's financial condition or results of operations in the
past and are not expected to have a material adverse impact in
the future.
BACKLOG
The Company's backlog of unshipped orders was approximately
$153.4 million at February 22, 1998, compared to approximately
$123.2 million at February 23, 1997. Historically, backlog is
subject to significant fluctuations due to the timing of orders
for individual large projects and currency fluctuations. All of
the backlog of orders at February 22, 1998 is expected to be
shipped during the succeeding six to nine months.
PATENTS AND TRADEMARKS
The Company owns numerous patents in the United States and
abroad on its modular carpet and manufacturing processes and on
the use of its INTERSEPT antimicrobial chemical agent in various
products. The duration of United States patents is between 14 and
20 years from the date of filing of a patent application or
issuance of the patent; the duration of patents issued in other
countries varies from country to country. The Company considers
its know-how and technology more important to its current
business than patents, and, accordingly, believes that expiration
of existing patents or nonissuance of patents under pending
applications would not have a material adverse effect on its
operations. However, the Company maintains an active patent and
trade secret program in order to protect its proprietary
technology, know-how and trade secrets.
18
The Company also owns numerous trademarks in the United
States and abroad. In addition to the United States, the primary
countries in which the Company has registered its trademarks are
the United Kingdom, Germany, Italy, France, Canada, Australia,
and Japan. Some of the more prominent registered trademarks of
the Company include: INTERFACE, HEUGA, INTERSEPT, GLASBAC,
GUILFORD OF MAINE, BENTLEY and PRINCE STREET TECHNOLOGIES.
Trademark registrations in the United States are valid for a
period of 10 years and are renewable for additional 10-year
periods as long as the mark remains in actual use. The duration
of trademarks registered in other countries varies from country
to country.
FINANCIAL INFORMATION BY GEOGRAPHIC AREAS
The Notes to the Company's Consolidated Financial Statements
sets forth information concerning the Company's sales, income and
assets by geographic areas. See Item 8.
EMPLOYEES
At February 28, 1998, the Company employed a total of
approximately 7,300 employees worldwide. Of such employees,
approximately 2,000 are clerical, sales, supervisory and
management personnel and the balance are manufacturing personnel.
The Company's Facilities Resource Group subsidiary and six
of the commercial flooring dealers recently acquired by the
Company have employee groups that are represented by unions. In
addition, certain of the Company's production employees in
Australia and the United Kingdom are represented by unions. As
required by the laws of the Netherlands, a Works Council, the
members of which are Company employees, is required to be
consulted by management with respect to certain matters relating
to the Company's operations in that country, such as a change in
control of Interface Europe B.V. (the Company's modular carpet
subsidiary based in the Netherlands), and the approval of such
Council is required for certain actions, including changes in
compensation scales or employee benefits. Management believes
that its relations with the Works Council, the unions and all of
its employees are good.
SECURITIES LITIGATION REFORM ACT
This Form 10-K and other statements issued or made from time
to time by the Company or its representatives contain 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. Those statements
include statements regarding the intent, belief or current
expectations of the Company and members of its management team,
as well as the assumptions on which such statements are based.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ
materially from those contemplated by such forward-looking
statements. Important factors currently known to management that
could cause actual results to differ materially from those in
forward-looking statements are set forth in the Safe Harbor
Compliance Statement for Forward-Looking Statements included as
Exhibit 99.1 to this Form 10-K, and are hereby incorporated by
reference. The Company undertakes no obligation to update or
19
revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future
operating results over time.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages as of
March 15, 1998, and principal positions with the Company are as
follows. Executive officers serve at the pleasure of the Board
of Directors.
20
Name Age Principal Position(s)
---- --- ---------------------
Ray C. Anderson 63 Chairman of the Board and Chief Executive Officer
Charles R. Eitel 48 President and Chief
Operating Officer
Michael D. Bertolucci 57 Senior Vice President
Brian L. DeMoura 52 Senior Vice President
Daniel T. Hendrix 43 Senior Vice President - Finance, Chief Financial Officer and
Treasurer
Don E. Russell 60 Senior Vice President
John H. Walker 53 Senior Vice President
Gordon D. Whitener 35 Senior Vice President
Raymond S. Willoch 39 Senior Vice President, General Counsel and Secretary
Alan S. Kabus 40 Vice President
John R. Wells 36 Vice President
Jeffrey A. Goldberg 56 Vice President
Joyce D. LaValle 53 Vice President
Mr. Anderson founded the Company in 1973, and has served as
the Company's Chairman and Chief Executive Officer since its
founding. Mr. Anderson was appointed by President Clinton to the
President's Council on Sustainable Development in 1996 and
currently serves as Co-Chair. Mr. Anderson is a member of the
Board of Directors of NationsBank Corporation. He also serves on
the Boards of numerous nonprofit organizations.
Mr. Eitel joined the Company in November 1993 as President
of Interface Flooring Systems, Inc. ("IFS", the Company's
principal U.S. modular carpet subsidiary) and Interface Americas,
Inc. (a wholly-owned U.S. holding company), with responsibility
for the Company's modular carpet operations throughout the
Americas. In October 1994, Mr. Eitel was promoted to Executive
Vice President of the Company and President and Chief Executive
Officer of the Floorcoverings Group, thereby assuming overall
responsibility for the Company's worldwide carpet business. In
February 1997, Mr. Eitel was promoted to President and Chief
Operating Officer of the Company. From July 1987 until joining
the Company, Mr. Eitel served as President of the Floorcoverings
Division (based in Dalton, Georgia) of Collins & Aikman
Corporation, a diversified textile producer headquartered in
North Carolina. Mr. Eitel also serves as a director of Weeks
Corporation, an industrial real estate company based in Atlanta
and Ladd Furniture, Inc., a North Carolina-based furniture
manufacturer.
Mr. Bertolucci joined the Company in April 1996 as President
of Interface Research Corporation and Senior Vice President of
the Company. From October 1989 until joining the Company, he was
Vice President of Technology for Highland Industries, an
industrial fabric company located in Greensboro, North Carolina.
Mr. DeMoura joined the Company in March 1994 as President
and Chief Executive Officer of Guilford of Maine, Inc. (now
Interface Interior Fabrics) and Senior Vice President of the Company.
He is currently responsible for the entire Interior Fabrics Group,
which includes Interface Interior Fabrics, Toltec, Intek, and
Camborne. From August 1990 until joining the Company,
21
Mr. DeMoura served as President and CEO of Fashion Fabrics of
America, Inc., an Orangeburg, South Carolina based producer of
fabrics for the upscale men's and women's apparel markets.
Mr. Hendrix, who previously was with a national accounting
firm, joined the Company in 1983. He was promoted to Treasurer
of the Company in 1984, Chief Financial Officer in 1985, Vice
President Finance in 1986, and Senior Vice President Finance in
October 1995.
Mr. Russell has served in various executive capacities since
1973. He became a Senior Vice President in 1986. From September
1995 until April 1997, Mr. Russell served as President and Chief
Executive Officer of the Company's Specialty Products Group,
composed of the Company's chemical and specialty surfaces
subsidiaries (Rockland and Pandel), INTERSEPT antimicrobial sales
and licensing program, and Interface Architectural Resources
business unit. Mr. Russell served as President and CEO of
Interface Europe, Inc. (the Company's U.S. holding company for
its subsidiaries in Europe) and Interface Europe B.V. from 1991
until August 1995. Mr. Russell intends to retire in April 1998.
Mr. Walker began his career with the Company as Financial
Controller of the U.K. Division of Heuga Holding B.V. (now
Interface Europe B.V.), a Netherlands-based carpet tile
manufacturer, which was acquired by the Company in 1988. He
later served as Vice President Sales & Marketing of Interface
Europe, B.V. and in July 1995 was promoted to the position of
Senior Vice President of the Company and President and Chief
Executive Officer of Interface Europe, Inc. In his current
position, he has responsibility for the Company's floorcovering
operations in both Europe and the Asia-Pacific region.
Mr. Whitener joined the Company in November 1993 as Senior
Vice President - Sales & Marketing of IFS. In October 1994, he
became a Senior Vice President of the Company and President and
Chief Executive Officer of IFS and Interface Americas, assuming
responsibility for both the Company's modular carpet operations
in North America, and Prince Street, the Company's commercial
broadloom carpet operation based in Cartersville, Georgia.
Mr. Whitener also assumed corporate responsibility for Bentley
Mills in July 1995 and the Specialty Products Group in April 1997.
He is thus responsible for all of the Company's operations in the
Americas, except the Interior Fabrics Group. From April 1988 until
joining the Company, Mr. Whitener served in various sales management
capacities with Collins & Aikman (Floorcoverings Division),
including Vice President Marketing. Mr. Whitener also serves as
a director of The Carpet & Rug Institute, a national trade
association headquartered in Dalton, Georgia, representing the
carpet and rug industry, and Aviation Group, Inc., a
Texas-based provider of products and services to airline
companies and other aviation firms.
Mr. Willoch, who previously practiced with an Atlanta law
firm, joined the Company in June 1990 as Corporate Counsel. He
was promoted to Assistant Secretary in 1991, Assistant Vice
President in 1993, Vice President in January 1996, and Secretary
and General Counsel in August 1996. In February 1998, Mr.
Willoch was promoted to Senior Vice President.
22
Mr. Kabus joined the Company in 1993 as a result of the
Company's acquisition of Bentley Mills, which he had joined as a
salesman in 1984. At the time of the acquisition, Mr. Kabus was
serving as Regional Sales Manager-Northeast Region of Bentley
Mills. He was promoted to Vice President of the Company in July
1995. From July 1995 until February 1998, Mr. Kabus served as
President and Chief Executive Officer of Bentley Mills. In March
1998, Mr. Kabus assumed responsibility for the Company's
Re:Source Americas dealer network and its other service
companies.
Mr. Wells joined the Company in February 1994 as Vice
President-Sales of IFS and was promoted to Senior Vice President-
Sales and Marketing of IFS in October 1994. He was promoted to
Vice President of the Company and President and Chief Executive
Officer of IFS in July 1995. In March 1998, Mr. Wells was also
named President and CEO of both Prince Street and Bentley Mills,
making him President and CEO of all three of the Company's U.S.
carpet mills. Prior to joining the Company, Mr. Wells worked with
the commercial division of Shaw Industries for 13 years, where he
was a key member of the management team that started the NETWORX
Modular Carpet Division of that company and where he also held
various sales management responsibilities for the Shaw Commercial
and Stratton Commercial Divisions.
Mr. Goldberg joined the Company as Senior Vice President-
Finance of IFS in March 1994. He became Senior Vice President-
Finance of Interface Americas Services, Inc. (the holding company
for the Company's Re:Source Americas dealer network and its other
service companies) in September 1994. He became a Vice President
of the Company in April 1997. From November 1996 until March 1998,
he served as President and Chief Executive Officer of Interface
Americas Services. In March 1998, Mr. Goldberg was named Senior Vice
President and Chief Strategic Officer of Interface Americas.
Prior to joining the Company, Mr. Goldberg served as Vice
President-Finance & Administration for Collins & Aikman
(Floorcovering Division).
Ms. LaValle joined the Company as Regional Vice President of
IFS in February 1993. She became Senior Vice President-Sales &
Marketing of Prince Street in July 1995. She became a Vice President
of the Company in April 1997. From November 1995 until March 1998,
she served as President and Chief Executive Officer of Prince Street.
In March 1998, Ms. LaValle was named Senior Vice President and Chief
Innovations Officer of Interface Americas.
23
ITEM 2. PROPERTIES
PROPERTIES
The Company maintains its corporate headquarters in Atlanta,
Georgia in approximately 16,697 square feet of leased space. The
following table lists the Company's principal manufacturing
facilities, all of which are owned by the Company except as
otherwise noted:
Location Primary Products Floor Space (Sq.Ft.)
-------- ---------------- --------------------
Athens, Tennessee ......................................... Modular carpet 71,577
Bangkok, Thailand ......................................... Modular carpet 66,072
Craigavon, N. Ireland ......................................... Modular carpet 125,060
Heckmondwike, England ......................................... Modular carpet 90,000
LaGrange, Georgia ............................................. Modular carpet 326,666
Ontario (Belleville), Canada .................................. Modular carpet 77,000
Picton, Australia ............................................. Modular carpet 89,560
Scherpenzeel, the Netherlands.................................. Modular carpet; Specialty products 292,142
Shanghai, China........................................ Modular carpet 106,962
Shelf, England ................................................ Modular carpet 223,342
West Point, Georgia ........................................... Modular carpet 161,000
Cartersville, Georgia ......................................... Broadloom carpet 210,000
Cartersville, Georgia ......................................... Broadloom carpet 45,000
City of Industry, California............................... Broadloom carpet 539,641
Genemuiden, the Netherlands................................ Broadloom carpet 36,788
West Yorkshire, England ....................................... Broadloom carpet 674,666
Aberdeen, North Carolina ...................................... Interior fabrics 88,000
Dudley, Massachusetts ......................................... Interior fabrics 300,000
East Douglas, Massachusetts.................................... Interior fabrics 301,772
Grand Rapids, Michigan(.................................... Interior fabrics 55,800
Greensboro, North Carolina................................. Interior fabrics 63,700
Guilford, Maine ............................................... Interior fabrics 396,690
Guilford, Maine ............................................... Interior fabrics 96,200
Lancashire, England........................................ Interior fabrics 54,000
Newport, Maine ................................................ Interior fabrics 208,932
West Yorkshire, England ....................................... Interior fabrics 135,000
Cartersville, Georgia...................................... Specialty products 124,500
Grand Rapids, Michigan..................................... Access flooring 120,000
Rockmart, Georgia ............................................. Chemicals 37,500
______________________________________
Leased.
Owned by a joint venture in which the Company has a 70%
interest.
Expected to be operational in April 1998.
Owned by a joint venture in which the Company has a 40%
interest.
The Company maintains marketing offices in approximately 95
locations in 39 countries and distribution facilities in
approximately 40 locations in six countries. Most of the
marketing locations and many of the distribution facilities are
leased.
24
The Company believes that its manufacturing and distribution
facilities, and its marketing offices, are sufficient for its
present operations. The Company will continue, however, to
consider the desirability of establishing additional facilities
and offices in other locations around the world as part of its
business strategy to meet expanding global market demands.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal
proceedings involving it or any of its property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information concerning the market prices for the
Company's Class A Common Stock and dividends on the Company's
Common Stock included in the Notes to the Company's Consolidated
Financial Statements in the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference. As of March 9,
1998, the Company had 425 holders of record of its Class A Common
Stock and 46 holders of record of its Class B Common Stock.
Management believes that there are in excess of 5,000 beneficial
holders of the Class A Common Stock.
During fiscal 1997, the Company issued an aggregate of
385,390 shares of its Common Stock that were not registered under
the Securities Act of 1933 ("Securities Act"). The shares, in
combination with cash, were issued as consideration in the
acquisitions of Camborne Holdings, Ltd., Facilities Resource
Group, Inc., Floormart, Inc. and Canaan Corporation, and were
issued to an aggregate of six individuals and entities. The
sales of the foregoing shares are exempt from registration under
the Securities Act pursuant to Section 4(2) of the Securities
Act, or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Information included in the Company's
1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's 1997 Annual
Report to Shareholders is incorporated herein by reference.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and the Report of
Independent Certified Public Accountants included in the
Company's 1997 Annual Report to Shareholders are incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Nomination and
Election of Directors" in the Company's definitive Proxy
Statement for the Company's 1998 Annual Meeting of Shareholders,
to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of the
Company's 1997 fiscal year, is incorporated herein by reference.
Pursuant to Instruction 3 to Paragraph (b) of Item 401 of
Regulation S-K, information relating to the executive officers of
the Company is included in Item 1 of this Report.
The information contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Company's 1998 Annual Meeting
of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's 1997 fiscal year, is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive
Compensation and Related Items" in the Company's definitive
Proxy Statement for the Company's 1998 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's 1997 fiscal year, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained under the caption "Principal
Shareholders and Management Stock Ownership" in the Company's
definitive Proxy Statement for the Company's 1998 Annual Meeting
of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days
after the end of the Company's 1997 fiscal year, is incorporated
herein by reference.
26
For purposes of determining the aggregate market value of
the Company's voting and non-voting stock held by non-affiliates,
shares held of record by directors and executive officers of the
Company have been excluded. The exclusion of such shares is not
intended to, and shall not, constitute a determination as to
which persons or entities may be "affiliates" of the Company as
that term is defined under federal securities laws.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Compensation
Committee Interlocks and Insider Participation" (second paragraph
only) and "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for the Company's 1998
Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than
120 days after the end of the Company's 1997 fiscal year, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements and Notes
thereto of Interface, Inc. and subsidiaries and related Report of
Independent Certified Public Accountants contained in the
Company's 1997 Annual Report to Shareholders, are incorporated by
reference in Item 8 of this Report:
Consolidated Balance Sheets - December 28, 1997 and December 29, 1996
Consolidated Statements of Income - years ended December 28,
1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows - years ended December 28,
1997, December 29, 1996 and December 31, 1995
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. FINANCIAL STATEMENT SCHEDULE
The following Consolidated Financial Statement Schedule
of Interface, Inc. and subsidiaries and related Report of
Independent Certified Public Accountants are included as
part of this Report (see page 21):
Report of Independent Certified Public Accountants
Schedule II -- Valuation and Qualifying Accounts and Reserves
27
3. EXHIBITS
The following exhibits are included as part of this
Report:
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Composite Articles of Incorporation (included as Exhibit 4.1
to the Company's current report on Form 8-K dated March 4, 1998,
previously filed with the Commission and incorporated herein
by reference).
3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended April 1,
1990, previously filed with the Commission and incorporated
herein by reference).
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's
Articles of Incorporation and Bylaws defining the rights
of holders of Common Stock of the Company.
4.2 Indenture governing the Company's 9.5% Senior
Subordinated Notes due 2005, dated as of November 15,
1995, among the Company, certain U.S. subsidiaries of the
Company, as Guarantors, and First Union National Bank of
Georgia, as Trustee (the "Indenture") (included as
Exhibit 4.1 to the Company's registration statement on
Form S-4, File No. 33-65201, previously filed with the
Commission and incorporated herein by reference); and
Supplement No. 1 to Indenture, dated as of December 27,
1996 (included as Exhibit 4.2(b) to the Company's Annual
Report on Form 10-K, previously filed with the Commission
and incorporated herein by reference.).
4.3 Form of Exchange Note (included as part of Exhibit 4.2).
10.1 Salary Continuation Plan, dated May 7, 1982 (included as
Exhibit 10.20 to the Company's registration statement on
Form S-1, File No. 2-82188, previously filed with the
Commission and incorporated herein by reference).*
10.2 Form of Salary Continuation Agreement (included as
Exhibit 10.1 to the Company's quarterly report on Form
10-Q/A for the quarter ended March 30, 1997, previously
filed with the Commission and incorporated herein by
reference).*
10.3 Interface, Inc. Omnibus Stock Incentive Plan (included as
Exhibit 10.6 to the Company's annual report on Form 10-K
for the year ended December 29, 1996, previously filed
with the Commission and incorporated herein by
reference).*
10.4 Interface, Inc. Nonqualified Savings Plan (included as
Exhibit 4 to the Company's registration statement on Form
S-8, file no. 333-38677, previously filed with the
Commission and incorporated herein by reference).*
28
10.5 Second Amended and Restated Credit Agreement, dated as of
June 25, 1997, among the Company (and certain direct and
indirect subsidiaries), the lenders listed therein,
SunTrust Bank, Atlanta and The First National Bank of
Chicago (included as Exhibit 10.27 to the Company's
quarterly report on Form 10-Q for the quarter ended
June 29, 1997 (the "1997 Second Quarter 10-Q"),
previously filed with the Commission and incorporated
herein by reference); and First Amendment thereto dated
December 2, 1997.
10.6 Term Loan Agreement, dated as of June 25, 1997, among the
Company (and certain direct and indirect subsidiaries),
the lenders listed therein, SunTrust Bank, Atlanta and
The First National Bank of Chicago (included as Exhibit
10.28 to the 1997 Second Quarter 10-Q, previously filed
with the Commission and incorporated herein by
reference); and First Amendment thereto dated
December 2, 1997.
10.7 Voting Agreement, dated April 13, 1993, among certain
shareholders of the Company (included as Exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the
quarter ended April 4, 1993, previously filed with the
Commission and incorporated herein by reference).
10.8 Employment Agreement of Ray C. Anderson dated April 1,
1997 (included as Exhibit 10.1 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.9 Change in Control Agreement of Ray C. Anderson dated
April 1, 1997 (included as Exhibit 10.2 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.10 Employment Agreement of Charles R. Eitel dated April 1,
1997 (included as Exhibit 10.3 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.11 Change in Control Agreement of Charles R. Eitel dated
April 1, 1997 (included as Exhibit 10.4 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.12 Employment Agreement of Brian L. DeMoura dated April 1,
1997 (included as Exhibit 10.5 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.13 Change in Control Agreement of Brian L. DeMoura dated
April 1, 1997 (included as Exhibit 10.6 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.14 Employment Agreement of Daniel T. Hendrix dated April 1,
1997 (included as Exhibit 10.7 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
29
10.15 Change in Control Agreement of Daniel T. Hendrix dated
April 1, 1997 (included as Exhibit 10.8 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.16 Employment Agreement of Gordon D. Whitener dated April 1,
1997 (included as Exhibit 10.9 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.17 Change in Control Agreement of Gordon D. Whitener dated
April 1, 1997 (included as Exhibit 10.10 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.18 Employment Agreement of Raymond S. Willoch dated April 1,
1997 (included as Exhibit 10.11 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.19 Change in Control Agreement of Raymond S. Willoch dated
April 1, 1997 (included as Exhibit 10.12 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.20 Employment Agreement of Jeffrey A. Goldberg dated April 1,
1997 (included as Exhibit 10.13 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference).*
10.21 Change of Control Agreement of Jeffrey A. Goldberg dated
April 1, 1997 (included as Exhibit 10.14 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.22 Employment Agreement of Alan S. Kabus dated April 1, 1997
(included as Exhibit 10.15 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.23 Change in Control Agreement of Alan S. Kabus dated
April 1, 1997 (included as Exhibit 10.16 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.24 Employment Agreement of Joyce D. LaValle dated April 1, 1997
(included as Exhibit 10.17 to the 1997 Second Quarter 10-Q,
previously filed with the Commission and incorporated herein
by reference).*
10.25 Change of Control Agreement of Joyce D. LaValle dated April 1,
1997 (included as Exhibit 10.18 to the 1997 Second Quarter 10-Q,
previously filed with the Commission and incorporated herein by
reference).*
10.26 Employment Agreement of John H. Walker dated April 1,
1997 (included as Exhibit 10.19 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.27 Change in Control Agreement of John H. Walker dated
April 1, 1997 (included as Exhibit 10.20 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.28 Employment Agreement of John L. Partridge dated April 1,
1997 (included as Exhibit 10.21 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.29 Change in Control Agreement of John L. Partridge dated
April 1, 1997 (included as Exhibit 10.22 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.30 Employment Agreement of John R. Wells dated April 1, 1997
(included as Exhibit 10.23 to the 1997 Second Quarter
10-Q, previously filed with the Commission and
incorporated herein by reference).*
30
10.31 Change in Control Agreement of John R. Wells dated
April 1, 1997 (included as Exhibit 10.24 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.32 Employment Agreement of Michael D. Bertolucci dated
April 1, 1997 (included as Exhibit 10.25 to the 1997
Second Quarter 10-Q, previously filed with the Commission
and incorporated herein by reference).*
10.33 Change in Control Agreement of Michael D. Bertolucci
dated April 1, 1997 (included as Exhibit 10.26 to the
1997 Second Quarter 10-Q, previously filed with the
Commission and incorporated herein by reference).*
10.34 Receivables Sale Agreement, dated as of August 4, 1995,
among Interface Securitization Corporation, Interface,
Inc., Special Purpose Accounts Receivable Cooperative
Corporation and Canadian Imperial Bank of Commerce
(included as Exhibit 10.26 to the 1995 10-K, previously
filed with the Commission and incorporated herein by
reference) and Amendment thereto dated as of
December 27, 1996 (included as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended
December 29, 1996, previously filed with the Commission
and incorporated herein by reference).
10.35 Receivables Sale Agreement, dated as of December 27,
1996, among Interface Securitization Corporation,
Interface, Inc., certain financial institutions (as bank
purchasers), and Canadian Imperial Bank of Commerce (as
administrative agent) (included as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended
December 29, 1996, previously filed with the
Commission and incorporated herein by reference).
11 Computation of Earnings Per Share
13 Certain information contained in the Company's Annual
Report to Shareholders for the fiscal year ended
December 28, 1997, which is expressly incorporated into
this Report by direct reference thereto.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP.
31
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule (years ended Dec. 31,
1995 and Dec. 29, 1996).
27.3 Restated Financial Data Schedule (quarters ended
March 31, 1996, June 30, 1996 and Sept. 29, 1996).
27.4 Restated Financial Data Schedule (quarters ended
March 30, 1997, June 29, 1997 and Sept. 28, 1997).
99.1 Safe Harbor Compliance Statement for Forward-Looking
Statements.
_______________________
* Management contract or compensatory plan or agreement required to
be filed pursuant to Item 14(c) of this Report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of the fiscal year covered by this Report.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Interface, Inc.
Atlanta, Georgia
The audits referred to in our Report dated February 17, 1998
relating to the Consolidated Financial Statements of Interface,
Inc. and subsidiaries, incorporated in Item 8 of the Form 10-K by
reference to the Annual Report to Shareholders for the fiscal
year ended December 28, 1997, included the audit of Financial
Statement Schedule II (Valuation and Qualifying Accounts and
Reserves) set forth in the Form 10-K. The Financial Statement
Schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the Financial
Statement Schedule.
In our opinion, such Schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1998
32
INTERFACE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
_______________________________________________________________________________________________________________________________
Column A Column B Column C Column D Column E
_______________________________________________________________________________________________________________________________
Balance at Charged to Charged to Deductions Balance at
beginning costs and other (describe) end of
of year expenses accounts year
_______________________________________________________________________________________________________________________________
(in thousands)
Allowance for doubtful accounts:
Year ended:
December 28, 1997 ............................$7,349 $2,032 $ -- $2,030 $7,351
December 29, 1996 ............................$5,870 $3,529 $ -- $2,050 $7,349
December 31, 1995 ............................$6,501 $2,448 $ -- $3,079 $5,870
- -----------------------
Includes changes in foreign currency exchange rates.
Includes allowance of $1,034 at acquisition date for Renovisions, C-
Tec and certain of the dealers in the Re:Source Americas network
during 1996 and $793 at acquisition date for Camborne, Carpet
Solutions and certain of the dealers in the Re:Source Americas
Network during 1997.
Write off bad debt.
(All other Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
omitted because they are either not applicable or the required
information is shown in the Company's Consolidated Financial Statements
or the Notes thereto.)
33
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERFACE, INC.
By: /s/ Ray C. Anderson
Ray C. Anderson
Chairman of the Board
and Chief Executive Officer
Date: March 25, 1998
POWER OF ATTORNEY
Know all men by these presents, that each person whose
signature appears below constitutes and appoints Ray C. Anderson as
attorney-in-fact, with power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorney-in-fact may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Capacity Date
--------- -------- ----
/s/ Ray C. Anderson Chairman of the Boardand Chief Executive Officer March 25, 1998
Ray C. Anderson (Principal Executive Officer)
/s/ Daniel T. Hendrix Senior Vice President, Chief Financial Officer, March 25, 1998
Daniel T. Hendrix Treasurer and Director (Principal Financial and
Accounting Officer)
/s/ Brian L. DeMoura Director March 25, 1998
Brian L. DeMoura
/s/ Charles R. Eitel Director March 25, 1998
Charles R. Eitel
/s/ Donald E. Russell Director March 25, 1998
Donald E. Russell
/s/ John H. Walker Director March 25, 1998
John H. Walker
/s/ Gordon D. Whitener Director March 25, 1998
Gordon D. Whitener
/s/ Dianne Dillon-Ridgley Director March 25, 1998
Dianne Dillon-Ridgley
/s/ Carl I. Gable Director March 25, 1998
Carl I. Gable
/s/ June M. Henton Director March 25, 1998
June M. Henton
/s/ J. Smith Lanier, II Director March 25, 1998
J. Smith Lanier, II
___________________________ Director
Leonard G. Saulter
/s/ Clarinus C.Th. van Andel Director March 25, 1998
Clarinus C.Th. van Andel
/TABLE
Exhibit Index
Exhibit
Number Description of Exhibit
------- ----------------------
10.5 First Amendment to Second Amended and Restated Credit
Agreement dated December 2, 1997.
10.6 First Amendment to Term Loan Agreement dated December 2,
1997.
11 Computation of Earnings Per Share
13 Certain information contained in the Company's Annual
Report to Shareholders for the fiscal year ended
December 28, 1997, which is expressly incorporated into
this Report by direct reference thereto.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule (years ended Dec. 31,
1995 and Dec. 29, 1996).
27.3 Restated Financial Data Schedule (quarters ended March 31,
1996, June 30, 1996 and Sept. 29, 1996).
27.4 Restated Financial Data Schedule (quarters ended March 30,
1997, June 29, 1997 and Sept. 28, 1997).
99.1 Safe Harbor Compliance Statement for Forward-Looking
Statements.